Dividend taxation

[Jerome]

Hi,

Yes, this is quite normal. Dividend yields are very low on indices for several reasons:

– historically, yields have been declining for several decades, with companies preferring to keep their profits to ensure their growth, buy back their shares or repay their debt and shareholders preferring, for tax reasons, to benefit from a rise in the share price rather than an income in hard cash

– valuations, despite the correction that began last year, still remain very high, which is dragging down dividend yields

– indices, especially the S&P 500, are currently over-represented by techs, due to long years of easy money initiated by central banks. Techs are generally quite stingy with dividends

The determining PF is obviously much more generous in dividends, since it is largely made up of undervalued shares.

And finally, you are right, a passive income strategy that consists of collecting dividends (in particular on an index ETF) is largely a losing one in this context, especially, as you say, since they are taxed. This is also one of the points that I raise in my book.

It is better to add to these dividends a risk-free withdrawal rate of capital AND to favor the purchase of undervalued stocks. This does not mean that index ETFs should be completely abandoned, but they must first and foremost be used as part of an asset allocation aimed at diversifying your investments.

[Sebastian]

Thank you very much Jérôme for the clarity of your answers, it also helps me to progress on this vast subject (your book also helped me but I notice that I will have to reread certain passages several times ;-)).

Have a nice day

[Author]

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