Sell before the dividend and buy back later?

[Mystic]

Good morning,

I'm thinking if my idea might be good.

Share X will be Ex-Dividend on 01.05 (for example), the meeting taking place on April 28. In order to save on taxes, I had thought of selling on April 27 to buy back the same number of shares on May 1. I would point out that the dividend is greater than 3% and that it does not come from equity.

As a result, I make a profit without necessarily declaring it to the tax authorities 🙂

Does my idea make sense? I am aware of the brokerage fees and they are negligible compared to the amount of shares I have. What do you think?

[Jerome]

Funny. This is the opposite strategy to dividend hunting, which is nonsense from a tax point of view. Especially since it is impossible to make a profit like this since the dividend is already included in the price.
Your idea is interesting, especially in Switzerland where only income gains are taxed. It clashes a little with the long-term investment values that we follow here, but on the other hand you buy back just behind so somewhere you stay on the position.
If you are with a broker like Interactive Brokers with ridiculous fees it may be worth it. On the other hand it is of course counterproductive if you are with intermediaries like Postfinance.
And then you shouldn't have too big a portfolio because following the ex dates of several dozen positions that pay dividends every 3 months can quickly become complicated! Not to mention that there may be many supporting documents and explanations to give to the tax authorities.
Anyway, I'm still curious if you could share your experiences on the subject if you decide to venture into it😉

[Mystic]

So I'll give you some more detailed figures on this idea. Of course, for it to work, it has to be a high dividend stock.

I take the example of 2 large dividend stocks in Germany: Allianz and Munich Re, each paying one dividend per year.

Allianz dividend: €7.60 (4.6%)
Munich Re dividend: €8.60 (4.8%)

When paying dividends, there is German withholding tax which amounts to 26,375 %

This tax can be subject to a partial refund request (a part remains with the German State). The German State takes 15% from the dividend after refund of the tax.

Result: per share, I therefore receive €6.46, respectively €7.31. So per share, I lose €1.14 + €1.29 of the dividend. However, in the eyes of the Swiss tax authorities, I am taxed on the entire amount.

With just 100 Munich Re shares, you "recover" €129 without being taxed! The only costs are the purchase and sale fees.

I know many people here are interested in US stocks. Unless I'm mistaken, US dividends are not subject to US tax, which is a plus.

[Jerome]

Yes, yes, it is submitted. Don't worry about the Americans, they haven't forgotten us either.
This approach is interesting. But as mentioned it requires a lot of work. In your case we are talking about one dividend per year so it's fine.
I have an existential question, though: why buy dividend-paying stocks if you don't want to get them?
Because in the end, that's the question. If you want to avoid the tax problem at all costs, and that's your primary concern, why not buy growth stocks that don't pay distributions, or even why not trade?
Personally, I appreciate receiving these hard coins, even if a small part ends up in the hands of the taxman.

[Mystic]

Why buy dividend-paying stocks if you don't want to get them? Simply because the dividend is "paid" by buying the stocks at ex-dividend.

My strategy is dividends because even if it crashes, we've received the money :) My entire portfolio related to stocks is in high dividend stocks.

[Jerome]

Yes, but with a view to becoming a rentier, the dividend must be received. Well, you will tell me that you can buy back by deducting what you must receive. Ok. Basically, it holds up. I just tell myself that it is a bit heavy to manage for large portfolios with quarterly dividends.

High dividends? Really? Or rather average and increasing dividends?

[Author]

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