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Anonymous
Does it make sense to dividends stock in US market with the high taxes?
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thefrugalstudent
25 Jan 2021
Founder at thefrugalstudent.com
Hi Anon,
The short answer is simply no, because as you've pointed out, the dividend withholding tax (30%) will diminish your returns over time.
This is not a problem for many US tech stocks as they usually don't pay dividends. US ETFs are also largely unaffected by this because they tend to pay out very small dividends, so 30% of that doesn't hurt very much. A workaround this is to buy Ireland-domiciled counterparts of the ETF (ie on the LSE) to get only a 15% hit in withholding tax.
But if you're looking specifically at dividend stocks, this becomes a problem because 30% of a 4-5% dividend yield can make a dividend stock go from hero to zero.
It's for this reason that it is usually advised to hold US equities for capital gain, as Moolah-Man has mentioned.
If you're keen on dividends, a good option to consider would be REITs.
Hope this helps!
Regards,
thefrugalstudent
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