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These dividend strategy advantages you have
A dividend strategy refers to a An investment tactic where you invest in companies that pay regular dividends.. These dividends are Distributions of the company's profit and can be a valuable source of passive income streams and wealth creation for you.
To build up a fortune with dividends, however, you must Consistently re-invest. This is mainly for tax reasons, which you will learn about in the course of this article.
Some Dividend advantages are:
Note that each investment strategy has advantages and disadvantages. Therefore, you need to carefully consider and understand whether a dividend strategy suits you personally.
One of the biggest advantages of a dividend strategy is the consistent and above all passive income. By investing in companies that regularly pay dividends, you can generate a stable stream of income. Suitable companies for this purpose are, in particular Dividend aristocrats.
Dividend aristocrats are companies that have been increased their dividends for at least 25 consecutive years and have not missed a payout during this period. These consistent income streams can help you build wealth in other asset classes, such as growth stocks.
As Growth stocks are shares in companies that are above-average growth rates in terms of turnover and profit.
While growth stocks generally rely on rising prices, you profit from the Dividends from regular distributions. A dividend strategy does not usually lead to strong share price gains because of the distributions. Instead, the Aim to build up a consistent, passive incomewhich supports you in building up your assets.
Another advantage of a dividend strategy is the Potential for capital appreciation. Although the main objective in a dividend strategy is passive income through regular income, there may be an increase in capital value over time.
Dividend-paying companies that have a good foundation and attract new investors, for example through the introduction of a new product, can boost their share price. In addition to the regular dividend payments, there are now price gains when you sell your position.
However, you should note that Capital appreciation With a dividend strategy - and with all other investments - it is important to Never guaranteed are. Careful analysis of financial fundamentals and prospects of the company is extremely important to minimise the risk of the investment.
What other dividend advantages are there? Let's look at another point.
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A dividend strategy allows you to increase your Diversify portfolio. Dividend stocks can be used as an additional position to valuable source for diversification The risk of a portfolio being underperforming can be very high, as they tend to perform differently than growth stocks. By investing in different sectors and companies, you can reduce the risk in your portfolio while achieving a more stable performance.
Interesting are Dividend shares in particular in economically weak phases and years. While growth stocks and entire economic sectors often sell off in a weak economic situation and thus suffer price losses, in the past, some Dividend shares stable or at least continued to pay a dividend.
Taxation on income is one of the most important aspects when it comes to building wealth. Unfortunately Dividends not tax-free in Switzerland. They are placed on the Gross distribution amount taxed and you have to include it as income in the Income tax indicated. This is one of the biggest disadvantages of a dividend strategy, because a tax reduces the return and the asset growth.
In order to prevent tax evasion, the Withholding tax deducted directly from your dividends paid out.
If you declare the withholding tax of 35% properly, the withholding tax can be claimed back in full on the next tax return. The dividend is then taxed as gross income (e.g. at the rate of 25%).
Case USA: In the USA, 30% withholding tax is due. For us private investors, however, usually only 15% ("tax retention USA") is due, as a double taxation agreement exists. We can reclaim the USA withholding tax from the tax administration (EStV). For the reclaim you need the R-US 164 Formwhich is the most common in most cantons in the DA-1 Form is integrated into the tax return.
Tax-free dividends are only available if the dividend is financed from the company's capital contribution reserves.
Mostly, however, dividends from the Retained earnings financed.
KER dividends: Distributions from the capital contribution reserves (KER) are tax-free for private investors. Since 2020, however, a distribution from the retained earnings must always be made in at least the same amount.
Tax-free dividends are therefore only available at a maximum of 50%, the other half is taxed as normal.
Since the distribution strategy is determined by the company, we shareholders have no influence on it.
Yes, dividends can be an important part of wealth accumulation, especially if you use them as passive income for wealth growth. By using the Dividends Re-investYou can generate new capital on a regular basis that you can reinvest in your portfolio. This continuous process over a longer period of time promotes your Asset growth and the Interest-rate effect.
Do not forget that you Tax income from dividends and that this affects the return from the outset. Research carefully and understand how the Taxation of dividends can affect your portfoliobefore deciding on a dividend strategy.
Overall, the use of dividends as Means of asset accumulation, however, very rewarding as long as you reinvest them regularly.
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A dividend strategy can help you help with wealth accumulationThis allows you to generate a consistent, passive income. Re-invested income provides additional capital through the payouts to buy growth stocks or diversify your portfolio.
Whether a dividend strategy is advantageous, however, should be examined more closely. For this purpose, not only the advantages of dividends should be examined, but also the disadvantages.
Because you should note that a Dividend strategy also disadvantagee and there are other ways to generate passive income. For example, through your own withdrawal strategies or concrete financial planning and cost control of your income.
What do you think about the dividend strategy? Do you see more advantages than disadvantages or do you have your own concept? Feel free to write it in the comments and share your experiences!
6 responses
As far as the declaration in the tax return is concerned, it is absolutely simple with custody accounts from Swiss financial institutions & fintechs. You receive an eTax certificate with huge QR codes. You simply upload them to the online tax return and that's it - less than 30 seconds of effort. For custody accounts abroad, much more manual input is required.
The matter of American shares in ETFs or funds is a bit more complicated. Most funds and ETFs with American shares are issued in Ireland. Accordingly, we usually pay the 15% withholding tax to Ireland.
In the case of funds/ETFs, it does not matter whether they are reinvesting or distributing. Tax is always due on dividends. Many people are often not aware of this.
Hello Eric, I am not entirely clear about the withholding tax of 35%.
In my opinion, this only applies to securities domiciled in Switzerland, correct?
With foreign withholding taxes, I have no chance of reclaiming them, right?
The only thing I can do is to fill in the DA1 form regarding double taxation.
Can you say anything more about that?
LG Peter
Hello, Peter,
I will gladly add something to this week's post on this point 🙂
Kind regards
Eric
1 point you forgot, ( KER) dividends, i.e. those from capital contribution reserves, are tax-free, max. 50%, greetings from a female investor.
Hello Mia,
thank you for your advice! 🙂
I thought the topic was a bit complex for some ... but you have now motivated me to add the topic of KER.
Kind regards
Eric
Exception: Foreign KER are 100% tax-free, e.g. Holcim dividends!