We’ve just started a dividend investing series on our Youtube channel. In the first video, we cover the following topics:
- The goal of dividend investing
- What is a dividend
- Тhe pros and cons of this method
We’d love to hear your thoughts in the comments
It’s a bit lacking for me. It would be good to mention that:
- What should matter to an investor is total return (price appreciation + dividends), not just the dividends
- Dividends may be taxed unfavorably in some countries compared to capital gains
- A dividend is not money out of thin air, so when a company pays a dividend, the price falls by the amount of the dividend paid
- An investor can create their own dividend by selling some shares
- A dividend ETF (e.g. Vanguard FTSE All-World high dividend) is better than picking individual stocks, as it’s very diversified
- Focusing on just the yield is a good way to fall for a value trap
However, the dividend may suffer from double taxation if held in a taxable account. Vanguard pays 15% tax on the US dividends. A UK taxpayer pays an additional 7.5%, 32.5% or 38.1%. Owning shares instead the ETF has the advantage that the total tax does not suffer from the +15% which Vanguard must pay up front on any US dividends in the ETF.
The basket of shares in VHYL probably return around 3.6%. 40% are US shares. The ETF pays 3.18%. So the ETF is not as low cost as it might first appear.