RDSA or RDSB – Which Shares To Buy?

You may be wondering whether you should buy Royal Dutch Shell A (RDSA) shares or Royal Dutch Shell B (RDSB) shares. If you know the answer then you are probably already familiar with the problems that come when a company is dually listed, and how important it is to buy the right shares if you wish to maximise the profit for your investment. If you are a somewhat less advanced student of this subject, then you might quite reasonably be asking exactly what is the difference between RDSA and RDSB and should this difference affect my decision about what to buy. Here is a brief explanation. Some companies have dual listings, which is just a way of saying that they are traded in different countries. For the larger companies, the price of the stock is usually the same across all the exchanges on which they are listed. From this, you might reasonably deduce that it is of no consequence on which exchange you buy your stock. You would be wrong about this; you should always buy stock in the country with, for instance, the lowest tax rate for dividend withholding. This may sound somewhat technical, but in fact, it is of vital importance if you wish to maximise the value of your investment. The withholding tax rate might be 15% in some countries and thus applied on their exchanges when dividends are paid, while its counterpart shares might be entirely exempt from this kind of withholding tax. It so happens that Royal Dutch Shell provides an excellent example of this.

To move from the general to the specific, Royal Dutch Shell is a dual listed company. It’s A share, RDSA, are listed in the Netherlands, on the AEX; its B shares, RDSB, are listed on the London Stock Exchange. At first glance, these shares appear identical. They carry the same voting rights, the same ownership stakes and qualify for the same dividends declared. So, what is the difference and how should it affect your decision of which type of shares to buy? If you are a UK resident, then you should definitely buy RDSB shares. Why is this? The answer is that RDSA shares in Amsterdam pay dividends after extracting a withholding tax of 15% for shareholders who are not resident in the EU. This is not the case for B shares in London. The latest dividend from Royal Dutch Shell pays $1.88 per share. After the withholding tax has been paid, A shares pay $1.60. B shares pay the full $1.88. This amounts to a difference of 28 cents or 15%, as we have noted before. This may not sound much but consider that if you own, for example, 320 shares in Royal Dutch Shell B, you would receive a dividend of £360 a year. If you had purchased your Shell shares in Amsterdam, that is, if they were A shares, then you would receive a dividend of only £306.

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