But there is a tax rate of 30% on dividends in Belgium (>812€), plus in some cases also a foreign withholding tax. Would you then still opt for this 'only'because of less volatility? Thanks
Investors should consider the implications of taxes on any strategy and choose one that works to meet their goals.
Some investors choose dividends because the lower volatility helps them stick to their strategy.
Lower volatility isn’t the only reason to consider dividend investing though. A dividend portfolio can also give you steady income and long-term growth of your capital.
Thanks for reading the article, hope you enjoyed it!
Taking taxes into account is indeed important. Given the fact that you pay 30% taxex in Belgium + taxes in the country where the company located, dividend investing might be less interesting and focusing on Quality might make more sense. :)
Each country and jurisdiction will have its own laws governing how dividends are taxed and these laws could be very different everywhere. The US distinguishes between two kinds of dividends, ordinary and qualified. Ordinary dividends are taxed at ordinary tax rates (hence the name), almost as if it were income earned through employment. This rate could be as high as 37% depending on your tax bracket. Qualified dividends have a maximum tax rate of 20%. Qualified dividends have to meet to certain requirements and the IRS specifies what these requirements are.
If these dividends come out of a tax advantaged account then the rules change again. You may not need to pay any taxes!
Also, consider your stage in life. Are you in your working years and accumulating wealth? Or are you retired and no longer receiving income from employment? If you are still collecting income from employment and the stock is not in a tax advantage account then consider lower yielding stocks that could have greater opportunities for capital appreciation.
A lot of my dividends come from stocks in a taxable account. That means I have access to the cash now. This would particularly useful in the case of an emergency like job loss or medical catastrophe. The dividends may not cover me 100% but it may help. In worst case, I can even sell the underlying stocks to keep my family healthy, safe, and secure.
Hello TJ Terwilliger! 👋 I'm looking forward to seeing more of your articles here! ☺️
Reinvesting dividends back into stock increases your yield on your original investment (or simply cost), especially if the dividend is increased. Even in my short investment journey I see my yield on cost for some of my business holdings rise to as high as 15%. I think this where another quote from Charlie Munger fits in well. Never interrupt compounding unnecessarily! 📈
I see many people on Seeking Alpha complaining about the less-than 1% yield on Apple and Microsoft and that the dividend is so low it should be removed. No, it shouldn't! ⛔ That would punish long term holders whose yield on cost could be well over 7% or even 10%!
At some point I will see my original investment returned to me through all past dividends and future dividends will be like an endless milk chocolate bar that I can munch on forever. 🍫 Just for fun, I track in my spreadsheet how much of my original I received back. My three highest are ExxonMobil (XOM) at 34.6%, Hercules Capital (HTGC) at 32.3%, and OneMain Holdings at 27.8% 👍
But there is a tax rate of 30% on dividends in Belgium (>812€), plus in some cases also a foreign withholding tax. Would you then still opt for this 'only'because of less volatility? Thanks
Investors should consider the implications of taxes on any strategy and choose one that works to meet their goals.
Some investors choose dividends because the lower volatility helps them stick to their strategy.
Lower volatility isn’t the only reason to consider dividend investing though. A dividend portfolio can also give you steady income and long-term growth of your capital.
Thanks for reading the article, hope you enjoyed it!
Hi Shari,
Taking taxes into account is indeed important. Given the fact that you pay 30% taxex in Belgium + taxes in the country where the company located, dividend investing might be less interesting and focusing on Quality might make more sense. :)
Each country and jurisdiction will have its own laws governing how dividends are taxed and these laws could be very different everywhere. The US distinguishes between two kinds of dividends, ordinary and qualified. Ordinary dividends are taxed at ordinary tax rates (hence the name), almost as if it were income earned through employment. This rate could be as high as 37% depending on your tax bracket. Qualified dividends have a maximum tax rate of 20%. Qualified dividends have to meet to certain requirements and the IRS specifies what these requirements are.
If these dividends come out of a tax advantaged account then the rules change again. You may not need to pay any taxes!
Also, consider your stage in life. Are you in your working years and accumulating wealth? Or are you retired and no longer receiving income from employment? If you are still collecting income from employment and the stock is not in a tax advantage account then consider lower yielding stocks that could have greater opportunities for capital appreciation.
A lot of my dividends come from stocks in a taxable account. That means I have access to the cash now. This would particularly useful in the case of an emergency like job loss or medical catastrophe. The dividends may not cover me 100% but it may help. In worst case, I can even sell the underlying stocks to keep my family healthy, safe, and secure.
Hello TJ Terwilliger! 👋 I'm looking forward to seeing more of your articles here! ☺️
Reinvesting dividends back into stock increases your yield on your original investment (or simply cost), especially if the dividend is increased. Even in my short investment journey I see my yield on cost for some of my business holdings rise to as high as 15%. I think this where another quote from Charlie Munger fits in well. Never interrupt compounding unnecessarily! 📈
I see many people on Seeking Alpha complaining about the less-than 1% yield on Apple and Microsoft and that the dividend is so low it should be removed. No, it shouldn't! ⛔ That would punish long term holders whose yield on cost could be well over 7% or even 10%!
At some point I will see my original investment returned to me through all past dividends and future dividends will be like an endless milk chocolate bar that I can munch on forever. 🍫 Just for fun, I track in my spreadsheet how much of my original I received back. My three highest are ExxonMobil (XOM) at 34.6%, Hercules Capital (HTGC) at 32.3%, and OneMain Holdings at 27.8% 👍
Looking forward to writing more Boris!
Avoiding interrupting compounding unnecessarily is wise advice!
Looking at dividends as a reduction of your cost basis is an interesting way to see things. Eventually you own the company for free!
The family is growing :)
Very excited to be a part of Compounding Dividends!
Let's make this a success all together :)