Dividends strategy in Switzerland

[CPMB]

Hello everyone,

Reading carefully the swiss tax rules, I am under the impression that investing in dividend stocks is not really worth it here.
- 35% of the dividend being deducted at source and reimboursed only after the tax declaration (but that generates each year a loss of earnings for a few months, and is a bit of a burden)
- the dividends being then added to your annual income and taxed accordingly (20-30%)

Especially compared to value stocks strategy, which can avoid taxation if not considered professional investor.

Are some people still investing in dividend stocks for their retirement / financial independence strategy ? Or are there some things that I miss ?

 

[Baptiste Wicht]

Hi

Indeed, dividend investing is not great in Switzerland.

It may be more interesting in your 3a or vested benefits accounts since dividends are more tax-efficient in these containers. They are not taxed as income but are taxed at withdrawal with a reduced tax rate.

 

[bqm]

Also note the academic research on the irrelevance of dividends in general. An empirical finding, so from a behavorial perspective it might make sense even with the tax treatment (not my view at all but atleast explainable).

 

[CPMB]

Hi

Indeed, dividend investing is not great in Switzerland.

It may be more interesting in your 3a or vested benefits accounts since dividends are more tax-efficient in these containers. They are not taxed as income but are taxed at withdrawal with a reduced tax rate.

Right, but in that case, dividend investing in order to live off dividends doesn't work at all should as well invest in growth stocks
Thanks for the confirmation anyway!

Also note the academic research on the irrelevance of dividends in general. An empirical finding, so from a behavorial perspective it might make sense even with the tax treatment (not my view at all but atleast explainable).

I would't be so harsh as saying irrelevant, as it serves a certain purpose (for example, if you are in your 50-60s, you haven't 40 years in front of you for growth anymore, you could as well invest in high dividend stocks to live off with more safety - these companies being usually huge firms), but indeed, you can't expect a dividend strategy to make you an exponential gain in capital.
Thanks for your answer!

 

[Morse Flores]

Hello everyone,

Reading carefully the swiss tax rules, I am under the impression that investing in dividend stocks is not really worth it here.
- 35% of the dividend being deducted at source and reimboursed only after the tax declaration (but that generates each year a loss of earnings for a few months, and is a bit of a burden)
- the dividends being then added to your annual income and taxed accordingly (20-30%)

Especially compared to value stocks strategy, which can avoid taxation if not considered professional investor.

Are some people still investing in dividend stocks for their retirement / financial independence strategy ? Or are there some things that I miss ?

Got the same dilemma in the beginning when I started investing in dividend paying stock in 2009 but I get used to it that it's over a decade now. The thing is that my dividend is now more than my monthly expenses, and thus allowing me to retire now if I want too. I see that dividend paying stocks from the UK, I am seeing any deductions, and with Canadian stocks, only 15% deductions.

 

[bqm]

Right, but in that case, dividend investing in order to live off dividends doesn't work at all should as well invest in growth stocks
Thanks for the confirmation anyway!



I would't be so harsh as saying irrelevant, as it serves a certain purpose (for example, if you are in your 50-60s, you haven't 40 years in front of you for growth anymore, you could as well invest in high dividend stocks to live off with more safety - these companies being usually huge firms), but indeed, you can't expect a dividend strategy to make you an exponential gain in capital.
Thanks for your answer!

The fallacy here in my opinon is that cash flow from dividends are seen as a different animal as from selling stock. In reality it is not. The only thing that matters (taxtreatment and fees excluded) is total return. Furthermore beliefing that high dividend stocks protect you more in downturns is dangerous and doesn‘t hold in general.

 

[CPMB]

Got the same dilemma in the beginning when I started investing in dividend paying stock in 2009 but I get used to it that it's over a decade now. The thing is that my dividend is now more than my monthly expenses, and thus allowing me to retire now if I want too. I see that dividend paying stocks from the UK, I am seeing any deductions, and with Canadian stocks, only 15% deductions.

Congrats! Gathering that much assets in 15y is a strong performance. Very interesting that you stuck to a dividend strategy despite the swiss hurdles. For sure, focusing on UK/US/Canadian (or Swiss of course) stocks seems the relevant thing to do regarding deductions.

The fallacy here in my opinon is that cash flow from dividends are seen as a different animal as from selling stock. In reality it is not. The only thing that matters (taxtreatment and fees excluded) is total return. Furthermore beliefing that high dividend stocks protect you more in downturns is dangerous and doesn‘t hold in general.

I get your point, even if I am still proceeding it : selling stocks reduces your % of the company slowly (even if of course this doesn't matter at all for small investors), and stocks produce dividends themselves - if they do - therefore the more shares, the more assets paying money you get. But I really get what you mean, benefits from companies not paying dividends being added to the reserves / assets and therefore rising the share price, or being used in a share buyback program. I guess I'll just have to meditate on that

However, I don't really agree with the end of your statement : the 2008 crisis has proven that while face value dropped, dividends dropped way less on average, big firms with resilient models still making cash. And generally speaking, a company with a mature business model (Coca Cola, Apple) will be less dangerous than growth stock still evolving quickly (let's say Tesla/Amazon at their beginnings).... even if the latter bring at the end of the day the biggest returns.

Interesting conversation anyway, thanks!

 

[bqm]

Congrats! Gathering that much assets in 15y is a strong performance. Very interesting that you stuck to a dividend strategy despite the swiss hurdles. For sure, focusing on UK/US/Canadian (or Swiss of course) stocks seems the relevant thing to do regarding deductions.



I get your point, even if I am still proceeding it : selling stocks reduces your % of the company slowly (even if of course this doesn't matter at all for small investors), and stocks produce dividends themselves - if they do - therefore the more shares, the more assets paying money you get. But I really get what you mean, benefits from companies not paying dividends being added to the reserves / assets and therefore rising the share price, or being used in a share buyback program. I guess I'll just have to meditate on that

However, I don't really agree with the end of your statement : the 2008 crisis has proven that while face value dropped, dividends dropped way less on average, big firms with resilient models still making cash. And generally speaking, a company with a mature business model (Coca Cola, Apple) will be less dangerous than growth stock still evolving quickly (let's say Tesla/Amazon at their beginnings).... even if the latter bring at the end of the day the biggest returns.

Interesting conversation anyway, thanks!

I also enjoy the food for thought and I‘m happy to stand corrected. I would argue that citing a few positive (I didn‘t check if the statment is even true, but I‘m confident that they held up better then banks) examples for one specific crisis doesn‘t hold for a general rule i.e. (high) yielding dividend stocks are less risky in general and shield in a crisis (banks surely didn‘t in 2008).