In this article, we look at how dividend stock investors can double or even potentially triple their yields.
All it takes is a change in strategy.
Sure, it might take some major adjustments on your behalf, but the basic concept is so simple you’ll wonder why you hadn’t thought about it sooner.
And, of course, as with everything we espouse here at Nomad Capitalist, it’s based on the central tenet of our business – go where you’re treated best.
Getting The Right Advice
But before we get into that, just a reminder that there is no one-size-fits-all solution to investment.
Everybody’s situation is different, everyone’s portfolio is different, and, naturally, everyone’s specific goals and objectives are different – so what works for us may not necessarily work for you.
After all, we’re not financial advisors. We’re not your broker. Rather we are global citizens who look for opportunities everywhere, whether that’s a second citizenship, legal tax reduction methods, or higher-yielding dividend stocks, no matter where they may be.
And in addition to our experienced team, we can call upon a vast pool of global talent across multiple disciples and jurisdictions to help us make the right choices.
So don’t view this as a how-to guide but rather as something to open your mind to the possibilities (and profitability) a carefully conceived and fully compliant offshore investment strategy can provide you.
And if you like what you hear, then get in touch, and we can show you how you can take full advantage as part of your carefully formulated and customized Action Plan.
Higher Yields, Lower Taxes
Interest rates are increasing, and with that comes increased income opportunities, but that doesn’t necessarily mean higher earnings.
This is certainly the situation that many US dividend stock investors are finding themselves in since many are likely earning the same income they were earning when rates had bottomed out.
But US equity investors could potentially double or even triple their dividend yields with one simple change in strategy – international diversification.
Again, we need to stress the importance of doing your own research and due diligence because the markets are in a constant state of flux, so today’s best performer could be tomorrow’s biggest disaster – that’s the way the markets are.
And would we really want it any other way?
Capitalism is all about risks and rewards, mitigating the former while maximizing the latter. This is the key to profitable investment.
So, with that in mind, you might find it rewarding to step outside your comfort zone and look at foreign equities, particularly ones that pay much higher yields than those in the US.
Some of them already trade as ADRs on the US stock market, while others will require an international brokerage account, such as Interactive Brokers.
This means you can diversify your holdings and look at stocks from around the world.
You may want to look at European stocks, like French or German stocks, though, as with most things in northern Europe, taxes are an issue.
Compare the yields of each stock against the dividend taxes imposed to ensure that they remain profitable. But if, on aggregate, they still pay out higher yields after taxes than their US equivalents, then they’re still worth investing in.
But what about stocks from countries with no dividend taxes? Well, for these, we recommend Asia, in particular Hong Kong and Singapore stocks.
High-Dividend Bank Stocks
Banks make sense; they’re generally profitable and don’t have the same capital expenditures that growth companies, so they’re more likely to provide regular, high-yield returns to shareholders.
American bank yields are generally between 2-3%. JP Morgan Chase is currently paying 2.89%, Bank of America and Wells Fargo are both a little over 3%, and Citibank currently pays 4.33%.
Compare those with banks in Asia, like Singapore’s DBS Bank. DBS is one of the biggest and most stable banks, not just in Asia but anywhere in the world. It’s currently paying dividends at 5.1%
Next, we have UOB at 4.78% and OCBC at 5.41% – these represent the “Big Three” banks in Singapore, globally respected and stable banks performing higher than their major US counterparts.
In Europe, it’s a similar story. French banks might not compare to US banks in terms of growth, though they pay higher yields. BNP Paribas and Society Generale pay yields of 6.6% and 7.7%, respectively, while Crédit Agricole pays 9.47%.
So, as you can see, by investing in equities in another country, you can potentially triple your yield, though that’s the theory – what matters is how to do it in practice.
Tax Reduction Strategies For Dividend Investors
As a US resident, you’re liable for dividend tax on any income you earn. If that income originates from outside the US, then things become more complicated still.
If the country has a double-tax treaty with the US, as many countries do, you don’t get double-taxed, but never just assume this is the case.
Many countries tax dividends at a lower tax than the US, even, surprisingly enough, France. (a place we usually refer to as a high-tax country.)
If you live outside the US, like Canada, for example, you don’t have the same tax issues as US citizens. You can move to a tax-friendly country like Ireland or Malta, provided they also have tax treaties with the country you’re investing in. This strategy could reduce your dividend withholding tax to as little as 5%.
So now, not only are you getting 2x or 3x the dividend yields, you’re also paying far less tax on them.
Plus, by expanding your portfolio further, you can look at countries that don’t have any tax on dividend yields, such as Singapore and Hong Kong.
If you’re a US citizen, the situation is more complicated but workable, but only if you take action now.
True, there are many citizenship by investment programs available around the world, but the best ones are in Europe, and they’re shutting fast.
Renouncing your citizenship and adopting a new home country may seem like a giant leap at first until you do the math and realize how much it’s actually costing you.
If you’re in the US, that’s 30% of your dividend profits wiped off this year.
So, the next thing is to ask how much will you lose next year? Or the year after that? Now think how much that’s going to be for five years, ten years… you get the picture.
Now compare that with how much you stand to gain from significantly reduced taxes on much higher yields – do the same math and project that over five years, ten years.
If you’re thinking, I should have done something about this years ago, don’t worry, we can fix it.
Contact us today about creating your custom Action Plan, and we’ll help you find the most optimal investment base for you that’s big on opportunity and low on taxes.
