Things To Consider Before Investing In Foreign Dividend Stocks

USA is pointing into recession. Hongkong is having a political crisis. As investors, we look for opportunities such as these to take a position in companies listed overseas. Here are some of the things to consider before investing in foreign dividend stocks. (Continue reading if you want a foreign dividend stock tip that is giving 12.97% dividend yield)

Dividend Stocks Hong Kong

Dividend Stocks Hong Kong: Will I really get the 4.12% dividend yield?

Introduction

Are dividends tax-free in Singapore? Yes they are. In fact, this is one of the reasons why Singapore is able to attract the ultra high net worth individuals to live in Singapore. You might be thinking how does this even affect me as a normal Singaporean living in Singapore. Consider this:

Situation A:

Hard Working Singaporean Working In A Job Earning $120K/Annually .
He will be taxed $7,950 (gross tax)

This means that he will be taking home $112,050.
(Source: https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/)

Situation B:

Hard Working Singaporean who invest in Singapore Dividend Stocks With Payout $120K/Annually.
He will be taxed $0 (gross tax)

This means he will be taking home the full $120K.

Wouldn’t this be wonderful?

 

What about Foreign Dividend Stocks?

It becomes more interesting when it comes to foreign dividend stocks. I also acknowledge that Singapore is a small country and we only have that much companies to choose from. Some of us also want to diversify our portfolio so that we have a regional dividend exposure. But what does that do to me? Will my dividends be taxed?

Case Study 1: Buying a US ETF (VWOB)

“If you can’t beat it, join it” ~ Jim Henson

If you have been investing for a while, you probably would have of heard of buying an ETF. Without going much into what an ETF is, people flock into it because of low fees and also instant diversification. Rather than doing analysis into companies, there are some that “buy into the whole market”. (Read more: What’s the difference between US stock indexes like the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500?)

Let’s look at VWOB or Vanguard Emerging Markets Government Bond ETF as an example. They only invest in the US market with an expense ratio of 0.3% (This is low. We are using this example so that we can treat expense ratio as negligible). This is also not a buy/sell recommendation.

Vangard Emerging Market Govt Bond ETF Dividend Yield

Vangard Emerging Market Govt Bond ETF Dividend Yield: 4.19%

Their dividend yield is decent. They give 4% worth of dividends and they distribute it monthly. This sounds decent for someone who wants to have a monthly cashflow from their dividends. But wait!

Though it has a promised dividend yield of around 4% a year, US withholding tax is 30%, this tax reduce the yield to roughly 2.8% making the investment not that worthwhile anymore.

Case Study 2: Buying a US ETF Listed in another country (VUSA)

Now if you want to beat the system by investing in a US ETF listed in another country, you will be glad that many people have already thought about that. In this case the VUSA is an US ETF (which copies the S&P500) listed in the Ireland. The yield is around 1.58% at the time of writing. With VUSD domiciled in Ireland, the 500 (or so) US companies now pay their dividends to a foreign corporation outside of the United States. Luckily, there is an US-Ireland tax treaty rate of 15% on dividends paid to Irish corporations. In this case, we are taxed at 15%.

(For those that are still reading, I want to email to you 5 high yielding foreign dividend stocks. One of which is giving 12.97% worth of dividend yield. Find out how below)

 

Let’s talk about countries who’s stocks I would potentially buy

Look no further, if you are looking at dividend stocks in these countries, I have already consolidated a nice table for you to consider.

Foreign Dividend Stock Tax Rates

Foreign Dividend Stock Tax Rates

Depending on what brokerage you use, there might be brokerage fees involved. We can safely say that there are dividend stocks in some countries that are more worthwhile to look at compared to others.

Please note that some of the examples above should be used as case studies. This is not a buy/sell recommendation for any countries or companies. Please view our disclaimer page to understand more. Please also consult a tax consultant if you wish to find out more.

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Now that you’ve mastered learnt about Foreign Dividend Stocks, I challenge you to read this article (How can we be rich and succeed in the financial world?) to push your understanding further!

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