How can you differentiate between dividends and capital gains? (2024)

Key takeaways from this article

• Portfolio balance:

  To differentiate between dividends and capital gains, look at your investment mix. Dividends offer steady income from profitable companies, while capital gains reflect stock value increases over time.

• Strategic timing:

  By adjusting your portfolio before earnings seasons to include more high dividend stocks, you can capitalize on predictable income streams and potentially lower market volatility.

This summary is powered by AI and these experts

• Frédéric BELTZUNG Agent Général - Le Conservateur
• Rajat Kulshrestha Equity Research analyst in Livelong…

• Frédéric BELTZUNG Agent Général - Le Conservateur

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  Les dividendes c'est bien mais pensez à la fiscalité appliquée. Il existe d'autres solutions avec une fiscalité allégé Contactez moi

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• Manjushree Sudheendra Freelance Writer | Currently pursuing Masters in Economics | BA Economics

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  Dividend is the portion of profit of a Company that is distributed to its shareholders by the Company. Dividend can be distribyted in the form of Cash or Stock etc.Declaration and Distribution of Dividend is decided by the Board of Directors and has to be approved by the Shareholders. Normally only a Profit making Company can pay Dividend. Dividebd also depends on the company's financial performance, cash flow, investment opportunities, and other considerations. There is no compulsion that a Profit making Company has to distribute Dividend.

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• adebola adenitan Strategy | Budget and budgetary control | Internal control | Product pricing

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  Dividends are either paid in cash based on a company performance or stock based on liquidity, or other share capital consideration. Dividends ( cash or stock) therefore are internally driven. Capital gains on the other hand is basically appreciation in value driven by company fundamentals / intrinsic value. It is the positive difference between current stock price and stock price at the time of investment.

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• Konstantinos Vergos

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  The part of the after tax profits that the General Shareholders meeting decides not to be retained by the firm as Retained Earnings to be added to the Equity of the firm, is distributed to the Shareholders as a cash payment, received as a cheque. This is called Dividend, and is paid periodically. Therefore, Dividend is tangible compensation, in terms of cash, to the shareholders, and can be regarded as containing information about future profit growth. Increased dividends signify positive company prospects.Capital gains are simply the increase of the value of shares in the stock exchange. Investors regard capital gains as the most important factor to decide how to invest, in cases of companies that do not distribute dividends(eg amazon)

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• Alexander S. McKenzie Retail Portfolio Manager at BIM Ltd.

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  Dividends are some percentage of the profits of a company which is distributed to the shareholders. Dividends can be issued as cash payments or stocks. Capital gains are profits realized by selling an investment such as shares, bonds, real estate, etc.

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• Abdulrahman AlShurafaa Economist at KFU l Applied Economics l FinTech l Business Development l Business Analysis l Project Management l Sustainable Development

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  Capital gains can apply to stocks, bonds, real estate, or any other asset that can be bought and sold. Unlike dividends, they are not guaranteed and depend on market fluctuations.

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  Dividend gain is the profit percentage given by an organization to its investor andCapital gain is defined as the profit made by an investor after selling its stocks

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• Shashank Ojha Intern - Maruti Suzuki India Ltd | Institute of Management Technology, Nagpur | PGDM Core | Member - Alumni Committee

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  Capital gain refers to the increase in the value of an investment, such as stocks, bonds, or other assets, over the time of ownership. When the market value of an asset rises above its purchase price, the difference between the two amounts represents the capital gain.They vary depending upon the performance of the market and the company.

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  Capital gains refer to the profit earned from the sale of an asset, such as stocks, real estate, or investments. It is calculated by the difference between the selling price and the original purchase price. If the selling price exceeds the purchase price, the investor realizes a capital gain; conversely, if the selling price is lower, it results in a capital loss. Capital gains can be either short-term (assets held for less than a year) or long-term (assets held for over a year). Tax implications vary between short-term and long-term gains, with long-term gains often enjoying preferential tax rates to encourage long-term investment. Investors often consider capital gains as a key factor in their overall return on investment strategy.

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• David L. Batista Assessor de Investimentos | FG/A Investimentos | FG/A | XP Investimentos | Captação de Clientes | Mercado Financeiro | Renda Variável | Produtos Financeiros | Renda Fixa | Bolsa de Valores | Assessoria de Investimentos

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  Os ganhos de capital em determinado(s) ativo(s) se resume à flutuação do valor percebido pelo mercado no momento de sua negociação.Em tese, se uma empresa reporta resultados extremamente negativos em seu balanço, por exemplo, o mercado pode reagir e fazer com que o valor de suas ações caia. O contrário é igualmente verdade: ao compartilhar alguma informação positiva e que possa beneficiar o setor da e/ou a empresa em questão, o reflexo pode ser a valorização de suas ações. Dada tal característica, é importante mencionar que os ganhos de capital geralmente vêm a longo prazo.Ademais, ao realizar lucro em tais operações, há incidência de imposto de renda (dependendo do prazo da operação e do volume movimentado).

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• Ganesh Nagarsekar Bharat Bet Research🐅 | IIM C, JPM, GS, CFA L3, BITS Goa

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  One needs to strike a balance between yield and growth - In India, a 5% yield 13% growth (high yield moderate growers) and a 2-3% yield 18% growth (moderate yield high growers) are the two broad buckets you'll find dividend stocks in.The tax treatment of the two varies in India - while dividends are taxed at slab rates, capital gains are taxed at 10-15% (10% long term, 15% short term).A benefit of dividend growth investing is that it takes care of many of the key checklist items:+ Business is very likely generating good free cash which is a must for any good business+ Management has an intent to return a part of it to minority shareholders+ Valuation comfort in the form of a reasonable dividend yield

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• Abdulrahman AlShurafaa Economist at KFU l Applied Economics l FinTech l Business Development l Business Analysis l Project Management l Sustainable Development

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  Risk and Return:1️⃣Dividends:Generally offer lower risk but also lower potential returns than capital gains. They provide areliable income stream, especially with established companies in mature industries. However, dividend growth may not keep pace with inflation, and the stock price can still fluctuate.2️⃣Capital Gains:Offer higher potential returns but with higher risk. The value of your investment canswing significantlybased on market movements and company performance. A successful sale can provide a substantial boost, but losses are also possible.

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• Matthew Moloney Founder @ meetlytic | Property Economics TUD

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  An example of the above;A business owner faces the challenge of striking a balance between meeting the income expectations of dividend-seeking investors and providing opportunities for capital appreciation sought by growth-focused investors.To balance the needs of the different types of investors, the business owner could consider adjusting the dividend policy based on the business's growth phase. During periods of rapid expansion or when new innovations are on the horizon, the business owner may choose to retain more profits for reinvestment. During stable phases however, they might allocate a higher portion to dividends.

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• David L. Batista Assessor de Investimentos | FG/A Investimentos | FG/A | XP Investimentos | Captação de Clientes | Mercado Financeiro | Renda Variável | Produtos Financeiros | Renda Fixa | Bolsa de Valores | Assessoria de Investimentos

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  Ainda que dividendos e ganhos de capital estritamente ligados, podem ser usados de formas diferentes pelos investidores no mercado financeiro:• Os dividendos costumam atrair investidores que focam no longo prazo, dado que seu pagamento ocorre com alguma frequência e, quando são reaportados, causam um interessante efeito de juros compostos;• O ganho de capital tende a ocorrer a longo prazo, com ações de empresas saudáveis. Ainda assim, muitos especuladores realizam operações visando ganhos com a (des)valorização de determinado ativo, trazendo uma possibilidade diferente da visão a longo prazo.

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• STILIAN GORICI Food Production Manager@ Sodexo

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  Dividends generally offer less risk long term ,especially if the investment is in more established companies or products, they have predictable return and are great for investors who want to have some peace of mind and spent less time on their investments. The opposite apply for the capital gains,require time and patience ,the return is corellate to the market price.

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• Alvaro Vadillo Zumarán Investment Advisor en Prudential, CFA Level I Passed

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  Depende de la regulación y la naturaleza fiscal del individuo. En el caso de Perú, tanto los dividendos como las ganancias de capital están sujetas a impuesto, aunque de manera distinta y dependiendo del mercado invertido (30% para acciones del exterior como el mercado americano). Sin embargo, este último solo aplica al momento de liquidar la inversión o realizar ganancia, por lo tanto NO es indiferente el balance dividendo/capital. Por esto, una estrategia ampliamente utilizada en gestión patrimonial son los vehículos UCITS acumulativos, ya que permite recibir los dividendos como capital permitiendo flexibilidad por diferimiento fiscal (valor de dinero en el tiempo) y tax harvesting (netear ganancias y pérdidas en el momento oportuno).

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  Les investisseurs avisés utilisent la connaissance des régimes fiscaux pour optimiser leur portefeuille. Par exemple, privilégier les investissem*nts générant des gains en capital à long terme peut être plus avantageux pour ceux qui se trouvent dans des tranches d'imposition élevées, en raison des taux d'imposition généralement plus bas sur ces gains.

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• Betty Ahwera FCCA/ADIT/CPA/ADIPEC Youth Council/MSc Energy Policy Expert

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  Dividend income is considered taxable in some countries that do not have an exemption on such foreign income. Capital gains are also considered taxable income under business income in most jurisdictions under domestic tax laws. It is also important to note that there are several types of capital gains; capital gains from direct disposals and indirect disposals. Depending on the domestic tax law, some countries do not tax gains from indirect transfers. Hence need to check the tax treatment of the different types of capital gains under domestic tax laws and double tax treaties.

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• Isleno Araújo, CFP® Planejador Financeiro Pessoal | Mentor certificações financeiras

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  O investidor precisa, antes de qualquer decisão, entender qual as regras tributárias do investimento, aqui o artigo trata especificamente sobre ganho de capital e dividendos de ações americanas, porém o mundo dos investimentos apresenta diversas outras opções em diversos países.Por isso a importância de conhecer bem as regras antes de aportar recursos, uma alternativa é contratar um especialista no assunto.

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• David L. Batista Assessor de Investimentos | FG/A Investimentos | FG/A | XP Investimentos | Captação de Clientes | Mercado Financeiro | Renda Variável | Produtos Financeiros | Renda Fixa | Bolsa de Valores | Assessoria de Investimentos

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  No Brasil, a incidência de impostos em cada uma destas situações é totalmente diferente – e isso é importante na análise de custo de oportunidade para determinado(s) ativo(s).• Os dividendos são isentos de impostos (para pessoas físicas);• Os ganhos de capital podem ser tributados, da seguinte forma:- Operações realizadas com lucro dentro de um mesmo dia são tributadas em 20% (dentre os quais 1% já é retido na fonte);- Operações com lucro concretizadas em período maior do que um dia, são tributadas em 15% (para ações, apenas com volume superior a R$20.000 no mês e, para fundos imobiliários, sendo qualquer volume).

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  I personally follow a strategy for Dividend income.I have allocated a certain % of my portfolio to high dividend stocks which have less deviation and when the earning seasons come, just before that I increase my allocation more into dividend stocks

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• Abdulrahman AlShurafaa Economist at KFU l Applied Economics l FinTech l Business Development l Business Analysis l Project Management l Sustainable Development

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  Optimizing Your Strategy:💡Your Investment Goals:Define your goals (income, growth, wealth preservation) to determine the right balance between dividends and capital gains.💡Risk Tolerance:Assess your risk tolerance and comfort level with market volatility.💡Asset Allocation:Diversify your portfolio across different asset classes and sectors to mitigate risk.

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• Kevin Brosious CPA Personal Financial Advisor

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  Hold your equities in your taxable accounts and take advantage of the lower tax rate for dividend and capital gains. Most dividend and capital gain income is capped at 15% tax. Bond income taxed at normal marginal rates, so hold them in tax advantage accounts (IRA, 401k, 403b, etc.)REIT dividend income is the exception. Because of the way they are structured dividend income from REITs are taxed as ordinary income.

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• Javier Oya Vidal Economista | Banca y finanzas |

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  Dentro de estas dos variables y sus posibles combinaciones se pueden vislumbrar los diferentes tipos de inversores que puede haber. Ya de inicio, el perfil de inversor que busca dividendos o plusvalías nos lleva a un perfil de riesgo considerado y un mercado de renta variable.Dentro del mercado de renta variable, la decisión entre esta métrica define al inversor en conservador (dividendos) o menos conservador (plusvalías) teniendo en cuenta que el activo subyacente es el mismo pero la mecánica de beneficios es distinta. Los dividendos, a pesar de no ser obligatorios, resultan atractivos como los cupones que supondría cualquier activo de renta fija, apostando por empresas relevantes (trends). La plusvalía apuesta por crecimiento (value)!

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• David L. Batista Assessor de Investimentos | FG/A Investimentos | FG/A | XP Investimentos | Captação de Clientes | Mercado Financeiro | Renda Variável | Produtos Financeiros | Renda Fixa | Bolsa de Valores | Assessoria de Investimentos

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  Buscar empresas boas pagadoras de dividendos pode ser uma excelente estratégia a longo prazo, principalmente caso o investidor faça o reinvestimento dos mesmos. Enquanto você for o detentor do ativo em questão, receberá (proporcionalmente) os proventos distribuídos.Já no que diz respeito ao ganho de capital, seu dinamismo permite buscarmos retornos a longo prazo (afinal, empresas saudáveis tendem a crescer), ou a curto prazo (com operações especulativas).

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• Gerald Ndobya Tax and Corporate Attorney

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  Dividends and Capital gains are sources of profit to shareholders and have a varying tax treatment in the Ugandan tax dispensation. Whereas dividends are payouts to shareholders as declared by the company’s board from the profits, a capital gain is an increase in the value of a capital asset which occurs when a capital asset is sold for a higher price than its original price. The tax treatment of dividends and capital gains is different in Uganda. Whereas dividends to residents or non-residents range from 0% to 15% subject to whether a company is listed or not or Tax DTA, Capital gains are treated as business income and subject to a 30% rate unless the rollover relief is available to the party obligated to pay the tax.

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• Betty Ahwera FCCA/ADIT/CPA/ADIPEC Youth Council/MSc Energy Policy Expert

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  It is important to consider the tax treatment of both dividend income and capital gains under domestic tax laws and doubly tax treaties.Moreover, dividends are also subject to withholding taxes (subject to the prevailing double tax treaty) in the source state which requires further consideration.

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• Abdulrahman AlShurafaa Economist at KFU l Applied Economics l FinTech l Business Development l Business Analysis l Project Management l Sustainable Development

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  📌There's no one-size-fits-all approach. The best mix of dividends and capital gains depends on your circ*mstances and financial goals.and here are some points to Considerations:💡Reinvestment:Reinvesting dividends can compound your returns over time.💡Growth Potential:Consider the company's growth potential when evaluating dividend stocks.💡Exit Strategy:Plan your exit strategy for capital gains investments based on market conditions and your goals.

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  An important distinction between dividends and capital gains lies in their timing and controllability. Dividends represent periodic distributions of a company's profits to shareholders and are typically paid out regularly, such as quarterly or annually. The timing and amount of dividends are beyond investors' control, determined by the company's board of directors. On the other hand, capital gains arise when an investment is sold for a price exceeding its purchase cost. Investors have more influence over when and how they realize capital gains since they can decide when to sell their investments.

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  This difference in timing and controllability holds significant implications for investors crafting their overall investment strategy. Dividends, being regular but uncontrollable, may appeal to those seeking consistent income, while capital gains, with more flexibility, may attract investors aiming for long-term growth. Understanding these distinctions aids investors in making well-informed decisions aligned with their financial goals.

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