American Depositary Receipt (ADR) Definition
What is an ADR ? An American Depositary Receipt (ADR) represents a share in a foreign corporation traded on U.S. exchanges such as the NYSE or Nasdaq. ADRs act as an essential bridge, allowing U.S. and global investors to access international companies without opening foreign brokerage accounts, handling FX conversions, or navigating overseas settlement systems.
ADRs also simplify dividend payments by distributing them in U.S. dollars. However, dividends are typically subject to withholding tax in the issuer’s home country—usually 15% to 30%. U.S. investors can often reclaim part or all of this amount through Double Tax Treaties (DTTs) and by filing IRS Form 1116 to receive the foreign tax credit.
For income-focused investors, ADRs unlock access to high-yield opportunities seldom available in the U.S. market. Sectors such as emerging-market banks, European telecommunications, and Latin American utilities often provide attractive and sustainable dividends. One of the most compelling examples today is Brazil, which consistently ranks among the world’s most rewarding dividend markets. Brazilian banks (Banco do Brasil, Itaú, Bradesco) enjoy oligopolistic profitability, while state-controlled giants like Petrobras distribute exceptionally high payouts during commodity upcycles. As a result, many Brazilian ADRs regularly deliver 8–15% dividend yields, sometimes more in peak cycles.
A major advantage: Brazil imposes 0% dividend withholding tax, making Brazilian ADRs particularly attractive on a net-yield basis.
👉 For complete tables, see the Dividend Withholding Tax (DWT) reference page.
Still, ADRs carry risks that investors must monitor closely. The first is currency risk, since both asset values and dividends originate in foreign currency. ADRs also incur custodial fees, sometimes deducted directly from dividend payments. And withholding tax rates vary meaningfully by jurisdiction — some, like Brazil and the U.K. (0%), are extremely favorable, while others such as Canada, Chile, or Colombia apply higher rates.
Another critical but often overlooked risk is delisting. ADRs can be removed from U.S. exchanges if the underlying company fails to meet U.S. reporting and audit standards or becomes subject to geopolitical restrictions. This occurred with Russian ADRs in 2022 and remains a concern for certain Chinese issuers under the HFCAA. Brazil is not exposed to systemic delisting risk, but political cycles can heavily influence dividend policies at Petrobras or Banco do Brasil, impacting payout stability.
Investors should also understand the ADR ratio, which determines how many local shares each ADR represents.
- Petrobras (PBR / PBR.A): 1 ADR = 2 local shares, meaning dividends per ADR reflect this multiplier.
- Banco do Brasil (BDORY): 1 ADR = 1 local share, simplifying valuation and yield comparisons.
Misinterpreting the ADR ratio can lead to inaccurate expectations regarding dividends, price movements, and relative value versus the local listing.
To provide context on withholding tax ranges: Brazil (0% until 2025), the U.K. (0%), Canada (15% after treaty), Colombia (~10% after treaty), and Chile (15% after treaty) are among the most common scenarios U.S. investors encounter.
👉 Full country-by-country details are available on the DWT page.
Popular high-yield ADRs include:
- Petrobras (PBR) – Brazil (Energy)
- Ecopetrol (EC) – Colombia (Energy)
- Vodafone Group (VOD) – United Kingdom (Telecommunications)
- Enel Chile (ENIC) – Chile (Utilities)
Pro Tip: Always verify the specific withholding tax rate and treaty treatment for an ADR’s country of origin before calculating yield. The Dividend Withholding Tax Tables in your Resource Center provide a complete reference.
You should read these articles about ADRs:
0% or 30% Tax on Foreign Dividends? – Pipart Global Income 10%+ Yield
Investing in One Country Could Sink Your Portfolio – Part 2 – Pipart Global Income 10%+ Yield