SG | What Should You Know Before Trading High Dividend Stocks (Singapore Version)

Singapore collect no capital gains tax, which means if you sell an asset, such as stocks or property, at a profit, you will not be required to pay any tax on the gain. How about dividend received?

Why Dividend Matters?

A dividend is the return payment that you receive for your investment in a company (as a shareholder) or a fund, It is paid out of a company’s profits and the amount you receive depends on the proportion of shares you hold in such company.

Listed companies fulfill their obligations and regularly or irregularly give back to shareholders. Shareholders receive corresponding returns from the earnings of listed companies and use dividends to enrich their interests, it is a better than nothing.

Some dividends have a fixed yield, such as preferred stocks dividends. For most common stocks, dividend payments are not always guaranteed. $SINGTEL(Z74.SI)$

Singtel Dividend Yield Range

There are mainly three types of dividends, cash dividend, stock dividend, and special dividend(extraordinary dividend / accelerated dividend), which could be other companies' stocks.

Shareholders could take the cash directly, or reinvest, which makes the "compound miracles".

Is there any dividend tax in Singapore?

At the individual level, in most cases, Singapore does not put a tax on dividends, because Singapore follows a one-tier corporate tax system. Once the Singapore-resident company have already paied corporate tax, it is final. The profits from which the dividends are paid will not pay the dividend tax again.

Income distributed from Real Estate Investment Trusts (REITs) is also exempted from Singapore dividend tax.

Check on SG IRAS.

There are a few circumstances in which your received dividends are taxable:

• Dividends paid by co-operatives

• Foreign dividends received by individuals through a partnership in Singapore

• Income distributed from Real Estate Investment Trusts (REITs) derived by individuals through a partnership in Singapore, or from the carrying on of a trade, business, or profession in REITs

In a word, individual is mostly preferred to exempting from dividend tax.

Are dividends of REITs always non-taxable?

S-REITs are an important component of Singapore’s stock market and comprise around 12% of the Singapore Exchange’s market capitalisation.

Top 20 S-REITs

Only for distributions made to certain foreign non-individual investors by REITs listed on the Singapore Exchange out of rental income from Singapore real estate, they are subject to a reduced tax rate of 10%.

What if Singapore individual investors get dividend from US stocks?

Unlike Singapore stocks, US stock’s dividend is taxable to Singapore individual investors.

Singapore investors are subject to a 30% US dividend withholding tax on all dividends received from US listed equities, since Singapore does not have a tax treaty with the US, these dividends are usually deducted before your dividends reach your account.

However, Singapore individual investors are non-US tax residents and are exempt from US capital gains tax, except some partnership which has not taxed before earnings.

What should Singapore individual investors do to High Dividend Stocks in portfolio?

For SGX high dividend stocks, it's quite safe to use "Buy and Hold" Stratedy, especially for those mid-cap stocks(or REITs), whose poor liquidity increases the cost on trading.

For US stocks, Singapore individual investors are better to avoid the dividend.

1 Sell the Stock before the ex-dividend day and buy it back

Noted, it is counted on the nature day, which means holding the stock during the extended hour on the day before opening, you are already not entitled to receive the dividend. If you sell it before, you can buy it back before opening.

2 Choose the same stock listed on other markets

For example, $NetEase(NTES)$ has both listed on US and HK market $NTES-S(09999)$ , HK market has no dividend tax to Singapore investors.

3 Use some covered option strategy to partially hedge.

Even for most high dividend US stocks, a quarterly dividend will not change the exercise price for its option, though call/put prices would change slightly.

For example, DELL is going ex-dividend on April.24th, with each stock $0.37. If the price on Apr. 23 is $41, you can sell a covered call on that price or lower, and buy it back on the next opening. Besides, you can trade as a covered call to optain premiums, covered call is somehow a better choice in late bull market.

Luckily, most of the tech stocks or other growth stocks does not offer high dividend or does not pay dividend at all, it is better choice for risk tolerance investors.

$SINGAPORE AIRLINES LTD(C6L.SI)$ $DBS GROUP HOLDINGS LTD(D05.SI)$ $OVERSEA-CHINESE BANKING CORP(O39.SI)$