A qualified dividend meets applicable tax-law requirements for taxation at preferential capital-gains rates. This treatment affects asset-location decisions because dividends create taxable distributions rather than fully deferred gains. section 8.2
Qualification depends on the dividend’s source and holding-period conditions:
- Dividends from domestic companies can qualify when holding-period requirements are met. section 8.2
- Foreign-company dividends can qualify when the company is readily tradable on a U.S. stock market, such as through an ADR, or is located in a country with a U.S. tax treaty. section 8.2
- REIT and MLP distributions are nonqualified dividends and often carry higher yields. 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 payout rates and payout tax rates across stocks, REITs, bonds, and other assets when evaluating tax-efficient account placement. section 8.2
