The problem with dividends - tax (#534)
Update: 2023-03-29
Description
Simon Shares
- MPC announcement Thursday.
- Purple Group* (JSE code: PPE) git the 120c bottom of the range, but has suddenly rallied.
- Steinhoff (JSE code: SNH), we now know what as the "Board agrees on a radical draft plan to enter into an insolvency process with creditors".
The problem with dividends - they not tax efficient.
They are great
But tax.
Dividend Withholding Tax (DWT) is 20%. The maximum Capital Gains Tax (CGT) is 18% after the annual R40k exclusion.
And DWT you pay along the way, eroding your return over time whereas CGT you only pay at the end.
Warren Buffett Berkshire Hathaway has never paid a dividend and he says they never will. Rather sell he says, more tax efficient.
Share buys backs are more efficient, but done at high valuations destroy capital.
No easy answer, but maybe we should temper our love?
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