Royal Dutch Shell Class A vs Class B Shares

This may be a dumb question, but, where is more info on the scrip dividend program? I have a Roth IRA with RDS.A instead of RDS.B. I had no clue that 15% was taken off the top prior to dividend distributions. I thought one class provided greater voting rights versus the other. Either way, thanks for such a fantastic explanation. You are truly a gem for educating people like me such complex subjects in a way that is easy to digest. Seriously, thanks a ton.

No problem; glad to help. It's not a dumb question at all. =)

Here is a PDF booklet on the Scrip Dividend Program for U.S. investors who own the ADS through either the Class A or Class B ADRs.

Here is a PDF booklet on the SCRIP Dividend Program for global investors who own the regular Class A or Class B shares traded directly in London or Amsterdam.

It sounds like you own the ADRs, so that first one should answer your questions. As you own them through a Roth, you could sell the Class A ADR and swap into the Class B ADR for for the cost of two commissions since you don't have to worry about transaction taxes. Alternatively, you could enroll in the Scrip and, provided your particular broker doesn't charge you anything for setting you up in the program, side-step the dividend withholding. You'd just get fresh Class A shares added to your account with no tax withholding.

This is a very interesting article Joshua. Since I have most of my assets in a taxable account, I purchased RDS/B. I do like these articles you posted, and do not think they are over my head. Of course, I deal with investments a lot, so my opinion might be skewed

Hi Joshua, I came across this blog through Google search on difference between RDS.A and RDS.B. I think your discussion on "loophole" is very interesting. But I am confused somewhat. On Google page, both RDS.A as well as RDS.B show the same $3.76 as annual dividend. Given that RDS.A is $49.87 and RDS.B is $52.78, there is already a 0.4% advantage with RDS.A currently. However, is that dividend amount ($3.76) BEFORE the Dutch tax on RDS.A?

If I buy RDS.A through my 401k account, will I have to make an election every quarter to receive the dividend in stock, rather than cash? That's be a pain, but I guess one has to do his part if he wants to gain a little bit of an edge 🙂

Also, how do I tell TD Ameritrade that I want to enroll for SCRIP Dividend Program to avoid Dutch withholding tax? Finally, do you know if RDS.A can offer fractional share as dividend? I read in one of the comments that only whole shares are awarded, but that was a 3 year old comment, so I don't know if there is any change to that now.

This is intellectual porn for me, I love it haha. I wish you wrote in-depth like this on more subjects more often.

I left a comment in a recent post about not being able to purchase shares of RDS.A or B through my Roth IRA. When I opened a chat with my roth IRA provider I got a rather vague reply that didn't really explain the limitation on me. For whatever reason, even though the RDS.B is listed on the NYSE, when I try to pull up the stock quote and attempt to purchase an order, no information comes up and I get an error. Nothing you can do, I know, just wondering if you've ever had any issues like this? I contacted them once again and am waiting for a reply to help me with the issue. I want to own some at such great value! >.<

Ha! You don't think I'd run off half of the readers? I already have people write me and tell me they like the site but it's too over their head. This is the sort of stuff that makes my heart flutter and my brain start looking for exploits. You and I are a tiny minority on this, I think. Unless I'm mistaken and there are a bunch of secretly obsessive geeks out there.

As to your question: Some antiquated brokerage firms don't use the proper "RDS.A" and "RDS.B" format from the post-merger but instead use "RDS-A" and "RDS-B". Still others who are really out of date use "RDS/A" and "RDS/B". I've even seen a handful use "RDSA" and "RDSB". Give the alternatives a try and let me know what happens. If still nothing works, I'd be concerned. Is this a mainstream brokerage firm? There is absolutely no reason - zero - that you shouldn't be able to buy the ADR listed on the NYSE. I have never encountered such a thing.

P.S. A few seconds ago, I just added a few paragraphs to the end of this article explaining how you could exploit a loophole to use the Class A shares to get a bigger yield in a Roth IRA or comparable retirement account. It's counter-intuitive, but I figured if I'm going to get into this level of minutia, I may as well go all in.

Bingo! "RDS'B" how weird. And yeah it's a mainstream. To find the quote, you need to type in RDS'B (I tried RDS.B and RDS-B) but throughout the stock quote everything is typed out as "RDS.B" Now to decide if I should swap my CVX for RDS.B for the long-term.

The link was the recent one about putting together a retirement account for your family member - and you replied with "I am partial to the Class B ADS that trade in New York under ticker symbol RDS.B or RDS-B depending on the broker. " Apparently theres five ways brokers will spell it out, in my case RDS'B lol.

And to be honest, I've been reading your blog sense you had 210k page views and I very often get frustrated that I'm not able to get more information/detail from you on a subject because you explain things in such a great way lol. Perhaps a "for more detail - check out this/these links or books" on certain posts? Just an idea, though as mentioned above - I'd much rather get that extra info through your words... Speaking of... when's that book coming out?? ~.^

Quick question - When reading the Scrip ADS pdf, in the 'how do I get started?' part, they say "If you are a registered ADS Holder on the books of the Depositary..." If I purchase shares of RDS.A through my Roth IRA, would I already be, or how would I go about, 'registering' my ownership of ADS shares "on the books of the Depositary"?

While on my Roth IRA account, I opened the help chat to ask one of their agents about how I can register my shares with the Depositary with them (that's what the PDF you linked above tells you to do) and they said they were unable to do this because they hold the shares in 'street name' and I would need to transfer my shares to someone else who can do this.

I spoke with a supervisor afterwards and was told:" The shares are held in street name which is the most common form of entry for stocks held by online brokers. RDS'A does offer special dividend elections that do not require you have your shares held in book entry in order to participate.Agent: The last 5 quarterly dividends issued by RDS'A have been special dividends with the option to make a cash or stock payment election.
Agent: Clients looking to participate in a special election will just respond to our notices that we send when they come due. Usually these are sent 2-3 weeks before the ex-dividend date for the dividend.
Agent: The client would need to reply to the email correspondence confirming their choice in the special election for the dividend.
Agent: Special election dividends are not eligible for DRIP, so you would need to let us know that you are opting for the stock dividend when offered by the issuing company.

Can anyone shed some light on this for me? I feel like I got a round-about answer that didn't actually address my concerns. The agent's replies seemed irritated after I asked a few more related questions and decided to say goodbye and close the chat.

I love this type of post, so count me among the "secretly obsessive geeks."

Whereas I fall into the "openly obsessive geeks" category. lol

While I do understand the "simpler" posts, I always read these in depth ones too. Everything is strange and over your head until you learn it. Isn't learning why people read blogs like this?

"Why didn’t I do this? My approach is different. I pool my dividends at the bottom of the accounts, and mix the money with fresh deposits. That combined pile of capital is then redeployed based on the best opportunities I see at the moment."

Could you effectively do the same thing even using the class A shares? Buy the class A shares and enroll in the scrip dividend program, then just sell off the excess shares as they are deposited into your account. Since it is a tax deferred account, this sale wouldn't trigger a tax, and you could then pool the money to buy a block of stock and leave yourself with the same ownership in Shell? (Although just out of curiousity, what would be the basis of the stock dividend shares?) It seems the only counter to this would be if the IRS said that the sale was effectively the equivalent to a cash dividend and taxed you on it anyway.

You would have to weigh the frictional costs (paying commissions) against the value of the discount. While it may make sense if you have a large enough stake, the discount is a one-off benefit, against a perpetual stream of frictional expenses.

Also - According to MSN Money - RDS.A currently has a 4.79 yield and the RDS.B has a 5.41... Not sure why the difference in figures from yours to mine?

The important thing is the actual amount of the dividend, which is currently $3.06 per year on Class A shares after the 15% Dutch withholding tax. MSN Money must be using some delayed share price to calculate the yield.

A yield of 4.79% would indicate a share price of $63.88, which the Class A shares have definitely been at in the past few days. At this moment, Class A shares are trading for $65.18 so the yield would be 4.69%. ($3.06/$65.18)

Joshua - this is a fantastic explanation. I am a big fan of your blog. I have read most of your articles (even the cooking ones !! ) and some of the fundamental entries multiple times in the last 2 months.

Thanks for the great work you are doing in educating the masses. I very much agree with the comment that somebody made below about this being "intellectual porn".

Thanks for the article. Appreciate what you do. - One more layer of consideration (correct me if I'm mistaken), if opting for the RDS.A shares and scrip dividend program, a U.S. (IRA) investor would need a minimum amount of shares to reap most of the tax benefit. It appears that Shell only applies the cash dividend equivalent towards whole shares. Thus any residue would then be taxed at 15%. Looking at today's price/ div a U.S investor would need at least 75 shares to avoid having the entire quarter's dividend taxed. As the share lot increased the tax consequence would be less meaningful, but it appears there would still be some tax 'leakage' each quarter.

A side note - check with whoever you have your IRA or other plan through, to make sure they'll be able to register your shares. I was unable to take advantage of the Scrip because the shares I purchased in my Roth IRA are considered "Street name".

Thanks. The rep at my brokerage claimed it could be done,
but you never know. I'll probably give Shell/ BNY Mellon a call as well to see
how it's initiated on their end.

Joshua, I enjoy your blog a lot, thanks for putting so much effort into it. I've been a lurker so far, but there is an aspect to British stocks that I believe you haven't mentioned in this post and others dedicated to British stocks, that might be of value to some of your readers. It's a tax nuance that would prevent me from holding RDS.B shares in a tax-sheltered retirement account if they were available to me in my home country Austria (which they are unfortunately not) and does prevent me from holding any British stocks on my company books, instead opting to hold them privately in fully taxable accounts.

The UK corporation tax used to be an imputation system until 1999, meaning that a natural person receiving a dividend also got an income tax credit that represented the corporation tax already paid on the profits out of which the dividends are paid, so profits were essentially taxed once at the level of the natural person, with the tax paid by the company only being an advance (withholding) tax. When the classical system (were profits are taxed at both the company and shareholder level separately) was reintroduced in 1999, a 10% tax credit stayed however with only minor limitations (you can't ask for the money to be reimbursed if you fall in a 0% tax bracket).

I love the UK. Not only do they choose to have 0% withholding tax (even despite the fact that in most cases their double taxation agreement would allow them to charge up to 15%), they put the icing on the cake by giving you a tax credit on top. It is the only country I know of that does this.

If I held UK stocks in a tax-free account then I'd be throwing away the 10% tax credit. We don't have IRAs in Austria, but when my company holds stocks it doesn't pay tax on the dividends anyway - otherwise it would be double taxation of profits.

I am not sure if the IRS in the US will recognize the UK tax credit, but within the EU it should be possible to use the tax credit to offset the tax liability just like the more common withholding tax is used to do so. Some governments might be more cooperative in recognizing the tax credit than others, but from my personal understanding of EU law you should have a right to this in any EU country. Here is how it works in Austria:

Much like Switzerland Austria has banking secrecy written into its constitution, so private citizens don't have to pay investment income tax directly to the tax office at the end of the tax year. Instead the banks subtract a 25% flat tax on any interest, dividends and capital gains earned, credit only 75% to your account and give the 25% anonymously to the tax man. Up to 15% withholding tax is recognized automatically and offsets the tax liability, so when the Netherlands withholds 15% then the Austrian bank will charge another 10% local tax for a total of 25%. Unfortunately when a country like France charges more than 15% withholding tax you still have to jump through bureaucratic French hoops to get your money back.

In the case of the UK however Austrian banks credit you with 111.11% of the dividend amount, then assume 10% British withholding tax (=10% tax credit), and proceed to subtract 15% Austrian tax to make up the difference to the required 25%. Because of the way the tax credit is calculated you end up paying a little more than 15%: 100/0.9=111.11*0.15=16.67% tax or in other words a net dividend of 83.33%. In the case of RDS.B which payed a 0.45 dollar dividend last quarter you get to keep 37.4985 cents instead of just 33.75 cent. If I put the stock in a company I'd get to keep all of the 45 cents, but if I would then distribute a dividend to myself with that money I'd be liable for the full 25% tax. It might make sense to keep the stocks in a company if the money is left there for a long time, since the untaxed 45 cents have more compounding power, but because I also want to hold stocks from other countries the proper allocation is to put British stocks into private ownership and stocks from other countries into the company.

I dont get it. how do we know the $.90 dividend isnt paid and THEN 15% is taken out of it when it hits your brokerage account? Where does it say the dividend is actually $.90 + 15% = $1.035

It's not $0.90 + 15% unfortunately. The tax credit is only 10%, but 10% of the total so you divide by 0.9 instead of multiplying by 1.1 (which is better because 10% of $1 is 10 cent, but 10% of $0.90 is only 9 cents). So in case of an ADS the total amount for tax calculation purposes would be 1$ of which 90 cents are payable and 10 cents go towards paying your taxes.

You can find information on this at the shell website in the dividend section: http://www.shell.com/global/aboutshell/investor/dividend-information/latest-announcement.html

They are talking about the ordinary shares on the website though, so you'll have to translate the numbers to ADS shares. in the case of ordinary shares the 45 cent dividend is bumped up to 50 cents.

Quote from the website:

Shareholders resident in the United Kingdom, receiving cash dividends on B Shares through the Dividend Access Mechanism, are entitled to a tax credit. This tax credit is not repayable. Non-residents may also be entitled to a tax credit, if double tax arrangements between the United Kingdom and their country of residence so provide, or if they are eligible for relief given to non-residents with certain special connections with the United Kingdom or to nationals of states in the European Economic Area.

The amount of tax credit is 10/90ths of the cash dividend, the tax credit referable to the second quarter 2013 interim dividend of US$0.45 is US$0.05 per ordinary share and the dividend and tax credit together amount to US$0.50.

I don't know if your country honors the tax credit, neither do I know if it applies to ADS or only to ordinary shares. In my case I hold the ordinary shares and I live in Austria and the tax credit reduces my tax burden on the dividends from 25% of $0.45 to 16.67% which is awesome because it results in a lot more compounding power. We don't have tax-sheltered retirement accounts in Austria as they exist in the US, so we have to take advantage of every additional compounding power we can get our hands on.

I'd love to hear from Joshua whether he knows if it is possible to take advantage of the tax credit in the US. I haven't read it, but the US/UK double taxation agreement is probably a favorable one.

To whomever it may concern: The tax credit - unfortunately - does not exist anymore. In early 2016 the UK has an income tax reform and eliminated the tax credit. Foreign investors are also affected as a side effect of this (the reform was written for UK tax residents).

Joshua,

Can we get your impressions on the 1,800 page historical compendium now that you've had some time with it? I've thought about picking it up for a bit of a case study, though its expensive. Thanks.

-Bill

Long time since this was posted but in light of brexit and the uk a shares declared and paid in euros unless requested otherwise does this mean they have euros deposited in the uk or pounds and they change pound euros. With an 10 per cent dev by the brexit vote this seems significant. Also if the former what does this do to the UK primary income debit.

If you have a decent broker then multiple currencies are supported and EUR dividends stay in EUR. Some brokers may require you to open a dedicated subaccount in that particular currency beforehand, for other brokers it is fully automatic and currencies just show up in your universal account. If your broker automatically changes the currency of your dividend there is a high chance that they will give you a bad exchange rate and high commissions on that currency exchange.

Brexit and the GBP move have no direct significant consequence for future Shell dividends. Shell declares its dividend in USD (remember, the oil business is dollar based) and has a policy to grow the absolute USD amount of the dividend. The EUR and GBP dividend are based off the declared USD dividend amount, so a weaker pound will mean an increased GBP dividend, but you still get the same purchasing power looking at it from a USD perspective. You might have some increased purchasing power with that shell dividend for some time if you live in the UK and purchase local groceries whose input costs are in GBP, but not if you refill your UK heating oil container since that price is USD based, as is your shell dividend. Since oil is a dollar business, you should look at your Shell dividends as dollar income, no matter what currency is happens to be paid in.

wow. this article really, really "nipped it in the bud" for me. best one i've found on the internet so far, on this particular subject. I have been wondering about rds a and b for a really long time, but had never purposefully gone on a true "due diligence" mission to figure it out. Thanks Mr. Kennon!

Hello!
I have five 1£ shares from 1930 (Shell Transport and Trading Company). Are they worth something today? That is on paper. In the bottom are dividend coupons. 3 of them are missing.