April 28, 2015

The Best Wedding Anniversary Gift Ever

Do you know one of the many reasons I know I found my soul mate 12+ years ago?  For our upcoming wedding anniversary, we bought each other shares of Total, SA, the French oil giant.  I’m not even kidding.  The shares have been added to the KGEP.

The thought process was, “Why give a gift that will be forgotten in the future, when I can give a gift that keeps paying dividends you can enjoy for the rest of your life?”  That means based on a rough estimate of typical life expectancy, instead of getting 1 gift now, we will each receive 200 gifts in the future (4 dividends per year x an estimated 50 years) that we can use for nice dinners, cashmere sweaters, travel, furniture, video games, watches, charitable donations, bottles of Creed, nice cookware, new televisions, tickets to movies, the theater, sporting events, or concerts, or whatever else we want at the time.  Plus, when we fall off the mortal coil, we then get to leave the children and grandchildren money to help pay for school, start a family, buy a house, or enjoy themselves.  

Total SA ADR France

It’s the gift that keeps on giving.  For the rest of our lives, we’ll keep benefiting from this particular anniversary, always remembering it.

Why Total, SA?  We already own a bunch of Royal Dutch Shell and BP.  The $49.22 stock pays a dividend of approximately $3.08 per year, for a dividend yield of 6.26%, but many financial sites report it net of a 30% French withholding tax, dropping it to $2.16.  This makes the yield look like it is 4.50%.  (The dividend amount can be slightly hard to pin down because the Total SA dividends are declared and paid in Euros, which then get converted to U.S. dollars by the sponsoring investment bank of the ADR; obviously the exchange rate fluctuates from quarter-to-quarter.)

However, if you fill out form 5000-EN, have it certified by your home tax office and brokerage firm, and ship it to the French government, you can take advantage of the lower 15% withholding rate that is applied to investors in the United States as long the ADR are held in regular taxable brokerage accounts.  That brings the net dividend to $2.618 per share, for a 5.32% yield.  Again, that’s after tax.

This means for someone who is willing to fill out a little bit of paperwork, you can collect a 6.26% pre-tax yield, which for taxable accounts is what you should be using as a comparison to other energy firms, which works out to a 5.32% after-tax yield.  You collect this cash while owning one of the largest oil companies on the planet, trading at 7.53 times next year’s earnings.

I’m still worried, a bit, about the corporate environment in France.  The court system struck down the 75% millionaire’s tax as inequitable, but there seems to still be a desire to drive all business out of the nation as the elected officials quickly sought to fix the problems with the first law and re-implement a confiscatory tax regime.  I’m having faith at the moment they will fix it, with the margin of safety in the security as part of a diversified portfolio acting as a buffer against being wrong (once the dividends are paid, they can’t take the money back, so the risk is reduced relative to initial capital outlay every quarter).  If I’m right, the future upside should be considerable years down the line.

I’m a simple man who finds joy in a lot of things.  This is how we both feel at the moment:

Whether you realize it or not, you are pumping money into Total’s coffers and now shipping us dividends.  Just look at Total SA Statistics – 2012-2013 Edition.  It’s crazy.  Use diapers for your baby?  There’s a good chance it made one of the adhesives that hold the plastic tabs on the material.  Travel by airplane?  The insulation and fire retardants were probably made by Total.  Plastic pipes?  Yep, Total sold 27,000 tons of polyethylene to China last year.  Not to mention all of those folks in Europe filling up their cars with petrol.

  • Bill

    Congratulations, you two. Reading your recent post about one of your greatest strengths and flaws – your obsessive focus – I can’t help but relate. I spend many hours of the day, every single day, learning. Whether I’m reading the latest John Deere annual report over a cup of morning coffee while my son points at the tractors, researching online the differences between beef cattle breeds, or scribbling ideas and numbers in a notebook while sitting in the passenger seat as we drive around running errands – my wife is always by my side. We strengthen each other. We’ve been married for 4 years, together for 8, come this August. We were best friends who each had a secret crush for one another for years in high school. All this time later, we still enjoy holding hands while we’re out, and genuinely wouldn’t want it any other way. Love and happiness is life’s purpose – congratulations again to you both, and happy anniversary. =)

    • http://www.joshuakennon.com/ Joshua Kennon

      Thank you. “We were best friends who each had a secret crush for one another for years in high school.” – That makes me so happy! I love stories like that.

    • Angie

      love and work are the two most important things in life, right?

      • Bill

        If by “work” you mean working towards your goals – absolutely. =)

  • Gilvus

    Congratulations. I can’t emphasize how fortunate you are to have found someone so forward-thinking at such a young age.

    That said, maybe you could help out your financially-minded readers who are single. Got any tips for where to find women with this sort of mindset? I have yet to meet someone who’s willing to even consider getting a moissanite-set ring and investing the difference between that and a diamond ring.

  • ZaVodou

    Do you only have to fill out form 5000EN for refund?
    I read somthing about IRS Form 6166 too.

    And are there any fees for Americans?



    • http://www.joshuakennon.com/ Joshua Kennon

      1. On the withholding side with the French Government, you fill out Form 5000EN for future dividends (to get the 15% rate) and Form 5001EN for past dividends (if you paid the 30% rate and want to reclaim the 15% difference you overpaid). If you use a good brokerage firm, you won’t have to do any of the work, they’ll take care of everything for you. In my experience, you send a quick message or make a phone call and they say, “Yeah, we’ll make sure only 15% is taken. It’s done.” It shouldn’t be any more complicated than that.

      2. When you go to pay your regular taxes in the United States, you have to fill out the appropriate forms to get credit for the taxes you paid to the Republic of France so you aren’t taxed on those same dividends again by the IRS. You would need to talk to an accountant, as well as familiarize yourself with IRS Publication 514: Foreign Tax Credit for Individuals (you can download a free PDF copy here) to learn which forms were required in your own individual situation. The IRS really did a good job on that document as it lays out the scenarios, provides examples, and walks you through the credits and deductions that might apply in a particular set of circumstances.

      Summary: The Form 5000-EN lets your broker tell the Republic of France to only take 15% of your dividends if you hold the ADR in a regular brokerage account. You still have to make sure you do your Federal taxes correctly with the IRS to prove you already paid dividend taxes to a foreign government so the U.S. doesn’t tax you again on those same dividends, which is a different process and requires a different form when you send in your paperwork on April 15th.

      One is to tell France, “Hey, I’m special, take 15% not 30%.” The other is to tell the United States, ‘Hey, I don’t have to pay this because I already paid taxes to France.”

      I’m oversimplifying a bit, but that’s the net effect.

      • ZaVodou

        Thanks for explanation, Joshua.

        But If you send 5000EN to the government of the Republic of France how do they know which shares do you own?
        This knows only your broker, I think.

        And you must send 5000EN before your purchase, don’t you?
        Otherwise you must go the 5001EN way, if you get a dividendpayment in the meantime.

        Did you ever use 5001EN?
        Did you pay any fees?


        • http://www.joshuakennon.com/ Joshua Kennon

          The same way they know how many shares you own to pay you your dividend. That’s what the entire custody and compliance industry does – they track these things.

          In the United States, you pick up the phone and tell your broker to make sure you get the 15% withholding rate. It’s that simple. They do all of the work. They are responsible for making sure when the dividends are deposited into your account, you get the lower rate. It took less than 10 seconds for me to send a message telling my broker to make sure that only 15% was withheld since I qualified, and very shortly thereafter, I received a confirmation saying, basically, “It’s done. We’ve taken care of it. You won’t see the 30% rate, only 15%.” It was that easy. I didn’t even fill out the paperwork myself, they took care of everything. If your brokerage firm can’t do that, I’d recommend seriously considering finding another broker.

          To answer your other question, yes, if you had already paid dividends and had them withheld at 30%, but you were entitled to the 15% rate, you would have to use the 5001-EN to reclaim those past over-payments from France. Again, the broker should do this for you. That is why they are paid.

          I am only speaking for investors who live in the United States and qualify for that exclusion under the tax treaty between the U.S. and France. I have no idea if you, being in Germany, are entitled to the same withholding rate as your dividend taxes are subject to very different rules.

        • ZaVodou

          Hello Joshua,

          as far as I learned from your lines. The things are pretty the same with the french withholding tax. No matter if you are an American or a German.

          The problem is that my German broker wants to see money for the service he is doing and some brokers do not offer the service of refunding. I think american Investors with small Investments will have the same problem.

          I think you trade with big money so fee is not a very big problem for you. But me and many of your readersas are small investors. Therefor fees are a big point.

          E.g. you can get a refund of 1,000 bucks and you have to pay 100 bucks for service. I think for you have everything is included so that you can’t tell much about your fees. That’s o.k. for you because your return is pretty well .

          But if you can refund only 100 bucks and your broker charges you with 100 bucks for service you have a problem.

          That’s why I avoided to buy french companies until yet. And I rather would buy Royal Dutch Shell instead of Total. No withholding tax no problems!

          New for me is that thing with reduced withholding tax. But I read that you have to send the form 5000EN (in my case 5000DE) every year to your broker.

          I only want to warn (american) Investors that things with the french withholding tax isn’t that easy and that you have to pay some fees maybe. So they must inform themself pretty well before buying shares of Total.



  • Roundball

    I’m bumping this page to see if I can get anyone’s insight on the 5000-EN form. I hold my Total SA shares at Vanguard and they flat-out refused to help with the filing of the form. Joshua had mentioned in the past that Charles Schwab was one of his brokers- are they adept at handling this? Does anyone have experience with Fidelity? Thanks!