The Royal Dutch Shell offers two types of shares- RDS.A and RDS.B. Are you confused as to which one to buy? Both RDS.A and RDS.B are good options. Nevertheless, there do exist some differences.
An RDS. A vs RDS.B comparison in 2021 will help you get an idea about them. You can then efficiently choose the one that best suits your requirements. Read on to find what are the principles and numbers that dictate each type.
Accordingly, we can discuss which one will be more beneficial depending on the circumstances.
RDS.A vs RDS.B Comparison -The Differences
The differences between these two types are quite a few. The following is an overview of them.
- Based in Amsterdam and subject to tax laws and regulations of Europe and the Netherlands
- No Voting Rights
- 15-25% tax withholding for foreigners, including US citizens
- Shareholders get rights to asset the first, in case of bankruptcy
- Based in London and subject to tax laws and regulations of the United Kingdom
- Voting Rights are valid
- No withholding tax for US or most foreign citizens
- No first rights
The key difference between RDS.A and RDS.B is the location in which they are based. This is what dictates how taxes are imposed on their dividends.
RDS.B is based in the United Kingdom. They also do not incur any tax withholding penalty. On the other hand, RDS.A has 15-25% tax withholding on the dividend. It is based in the Netherlands. In the RDS.A vs RDS.B comparison, this is also what usually makes RDS.A cheaper per share.
In the RDS.A vs RDS.B comparison, first-serve rights can be a dealbreaker. They can also make RDS.B cost less than RDS.A. How do first-serve rights affect shareholders?
As we have seen above, RDS.A shareholders get this right. It essentially means that in case of bankruptcy or liquidation, these shareholders will be the first to get assets or any compensation leftover from the bankruptcy.
On the contrary, RDS.B shareholders will probably not get anything till all RDS.A shareholders have gotten their dues. The current pandemic has given rise to concerns regarding bankruptcy due to problems in the oil industry. Subsequently, RDS.B became cheaper.
RDS.A shareholders do not have voting rights at the company. The RDS.B shareholders? They do. Therefore, in the RDS.A vs RDS.B comparison, they hold much more power to make decisions.
Does this matter? RDS stockholders, regardless of the type, do not hold absolute power over the stocks and so it can matter. So, the power does not mean much. Also, RDS is generally well-managed. It is unlikely some authority will threaten it.
The industry itself is also a stable one. Worried about activist uprisings? Do not, because this industry rarely sees the likes of them. This is why it is rather unlikely that RDS.B shares will materially surpass RDS.A shares even with this power.
While bankruptcy benefits do sound good in print, they often do not mean much. In the case of bankruptcy proceedings, in most cases, the result is hardly anything. This is because of how assets are distributed.
First, the company will try to settle all debts. Therefore, the debtors get the lion’s share of what is left. After that, preferred shares get settlements from the remaining leftovers.
Then comes the non-traded shares, if any. Lastly, the company turns to the RDS.A shareholders and then the RDS.B shareholders.
In reality, this results in hardly a few dollars, even if you are an RDS.A shareholder. This proves that there is practically no way out of bankruptcy. If it happens, you will be at a loss.
However, this is not a very important factor. Royal Dutch Shell is a pretty low-cost producer, which makes the possibility of bankruptcy, low. In general, too, you should not invest in holding to bankruptcy.
RDS.A vs RDS.B Comparison-Similarities
The following are two similarities that these shares have.
- Both types of shares command equal representation in the company.
- Both types have equal rights when it comes to dividend distributions.
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Which one to Choose?
After going through this RDS.A vs RDS.B comparison, there might be some points that stand out to you. The factor that determines most choices is how costly the share currently is.
Like all things, the oil industry has been affected by the pandemic too. When things were better, RDS.A was the cheaper option.
This discount is made up of the withholding fees. However, now, it is not that cheap anymore. The question as to which type to choose, therefore, has become much more difficult.
The Ideal Choice
As we have seen, factors like voting rights or bankruptcy benefits might not mean that much. If they are not a dealbreaker for you, practically, they should not make much of an impact on your choice. They do not make one type significantly better than the other.
How, then, can you tell which type of shares are cheaper? You can opt for whichever currently has a lower price. This applies even with a 1-2% premium in RDS.B share prices.
This is because, as a US citizen, the tax withholding does not hold much value. Due to the tax treaties, on getting the 1099-B from brokerage, you can claim the withheld dividend amount on your taxes.
In the long run, foreigners’ withholding factor does not have much material impact on how the investment will perform.
There is only one way in which this tax withholding that RDS.A shares come with, can affect you. Suppose you have a large amount of money invested, such that it qualifies for the upper limit of 25%.
Then, you will have a long-term qualified dividend tax rate that is 10% higher. This is because this percentage will typically not be reimbursed.
It is best to consult a tax advisor regarding this. This is because the above is a very basic understanding of the matter.
This RDS.A vs RDS.B comparison has hopefully equipped you with the basics of all you need to know when buying the shares. Much of this decision can be based on personal circumstances. Nevertheless, it is very important to know more about what these shares entail.