A dividend distributes company earnings or capital to shareholders. For asset location, dividend payments reduce tax deferral because part of an investment’s return is realized before sale. section 8.2
Evaluate dividends through their tax classification, yield, and effect on account selection:
- Qualified dividends from domestic companies and some foreign companies may receive lower capital-gains tax rates when holding-period requirements are met. section 8.2
- REIT and MLP distributions are nonqualified dividends, often reflecting pass-through income and higher yields. section 8.2
- Higher payout rates increase the tax cost of holding dividend-paying assets in taxable accounts, while expected returns magnify account-location differences. section 8.2
Table 8.3 Typical attributes of various assets
| Type of asset | Average return | Payout rate | Tax rate payout | Turnover rate |
| Large-cap stocks | 8% | 1.5% | 0.2 | 0 |
| High-growth stocks | 9.5% | 1.5% | 0.2 | 0 |
| International stocks | 8% | 1.5% | 0.25 | 0 |
| REITs | 8% | 4.5% | 0.35 | 0 |
| Money market fund | 3% | 3% | 0.35 | 0 |
| Government bonds | 4% | 4% | 0.35 | 0 |
| High-yield bonds | 7.5% | 5.5% | 0.35 | 0 |
| Municipal bonds | 2.5% | 2% | 0 | 0 |
| Large-cap,high-turnover stocks | 8% | 1.5% | 0.2 | 0.2 |
| High-growth,high-turnover stocks | 9.5% | 1.5% | 0.2 | 0.2 |
Compare dividend payout rates, payout tax rates, returns, and turnover across stocks, REITs, bonds, and money-market funds. section 8.2
