Looking for the best brokers to invest in dividends this year? Next, we show the basis of the strategy and the best broker to execute the strategy.
Within the multifunctional scope that stocks allow, the dividend-seeking investment strategy is one of the most classic and conservative strategies. However, to get the most out of it without giving up on quality of service and all the right features for investors to operate, you need to consider various commissions and fees. For the sake of simplicity, in this article we show which are the best brokers to invest in dividends in 2021.
What is the investment in dividends in the best brokers
Investing dividends is an investment strategy, its actions include the search for profitability and part of the company’s profits distributed to shareholders. In other words, the possible appreciation or volatility of the shares in the market is a secondary factor.
Investors are trying to find well-performing companies that have a good track record in distributing dividends and are likely to increase profits year after year. Not all stocks are suitable for investment dividends, depending on the industry and company conditions, and your profit sharing policy is key.
This will be one of the prerequisites for choosing the best broker for dividend investing: they must have companies available in their catalog of tools for such strategies.
To develop this strategy, investors must have certain basic analytical concepts in order to assess whether the company meets the necessary requirements to be part of the investment portfolio. This is a long-term strategy because the idea is to reinvest the dividends (or a large part of the dividends) received and increase the capital exponentially, which is similar to how compound interest works.
Types of dividends and when to invest
Investors need to understand some basic concepts, such as the types of dividends and the dates to monitor. There are several types of dividends:
- Ordinary stock dividends: Dividends distributed to shareholders each year due to previous year’s operating profit.
- Dividend on account: This dividend is part of the ordinary dividend paid before the annual benefit is approved and is therefore a corresponding dividend. Therefore, it is called “on the account” (with future benefits). In many cases, the company will pay dividends regularly throughout the year (for example, quarterly). Before approving the benefit of the previous year and paying the corresponding dividend, the distribution will be based on the dividend.
- Complementary dividends: Complementary dividends are dividends that are given to complete the payment after various parts of the interim dividend have been distributed. In other words, the company distributes based on expected annual earnings and distributes dividends based on dividends. Once the annual profit is known, the remaining amount that can be distributed through the so-called complementary dividend can be settled.
- Special dividend: It is the result of the distribution of benefits generated by the abnormal activities of the company. For example, sale of assets (industrial buildings, factories, etc.). The sale has generated capital gains, which the company may decide to distribute to shareholders (in whole or in part) in the form of special dividends.
- Scrip dividend: This is the use of company stock instead of money to pay dividends. It is often used to increase the liquidity of the company. Shareholders can sell these shares with the right of first refusal for cash.
As for the date, investors should take into account the dividend calendar, which allows you to know the payment date. However, in addition to the dividend settlement date, you must also know the term date, and the holder is legally considered the legal owner of the shares and therefore has the right to receive the dividend.
This is the so-called “ex-dividend date”, which means that from this day on, even if the shares are purchased, they will no longer have the right to receive dividends. If the investor owns the shares before today, he can receive dividends even if he sells the shares later.
Taxation and commissions of dividends
Once the weighted average purchase price of a company’s shares is known, the investor can calculate the dividend yield that will be obtained.
In fact, the price paid for the shares determines the profitability obtained from collecting dividends. For example, if you pay 100 euros to buy shares, you will receive a dividend of 20 euros. The dividend yield is 20%. However, if these same shares are bought at a price of 90 euros, the profit margin will increase to 22.22%.
However, to invest in dividends, you must consider commissions and taxes.
The receipt of dividends is not exempt from tax. According to Spanish tax legislation, investors will suffer a withholding of 19% each time they receive the amount of this concept. Subsequently, in the corresponding income tax return, it will be available in the account of the tax agency.
- Dividends are taxed on the tax base of savings, with the following tax levels:
- Below € 6,000: 19%
- Between 6,000.01 euros and 50,000 euros: 21%
- From 50,000 euros: 23%.
- In addition, operators must take into account the Tobin tax. This rate will be applied in the purchase of shares of Spanish companies worth more than 1,000 million euros (0.2%). This tax is assessed once a month and a declaration must be filed every year.
- Brokerage commission
- On the other hand, the best brokers that allow us to enter the market and allow us to invest in dividends charge commissions by charging commissions. These are the most common:
- Commission for execution of purchase orders.
- Stock market rates.
- Trusteeship Committee.
- Receive dividends and commissions from other company businesses.
Investing in dividends does not mean that you have to keep buying and selling stocks, so the commission may be lower in this strategy. On the other hand, stocks will remain in the investment portfolio for a long time and custody fees should be lowered. In addition to handling dividends, mergers, acquisitions and other corporate business for brokers to charge high fees.
In this sense, there are a large number of offers on the market, and below we show the best brokers for dividend investment.
Best brokers to invest in dividends today
It started out as a forex and CFD broker, although it increased the range of products available and allowed for trading with stock and cash ETFs.
In this way, investors can choose to invest in stocks or CFDs on stocks. Although the first option is generally a better execution strategy for investing in dividends, both have their advantages.
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For example, with CFDs, you are also entitled to receive dividends (as long as you hold a long position in the stock) and, due to leverage, you can make higher trading volumes. However, if you keep an open position every day, you will be charged trading fees.
It is true that holding a CFD portfolio of stocks for a period of time can cause losses and deplete our margin, but in general, to follow the investment dividend strategy, we tend to choose solid stocks with less volatility.
In any case, XTB offers many spot investment opportunities – no commissions. It is not used for sale, or in custody, or to collect dividends. For this and other types of strategies, it is one of the best and most interesting brokers.
The case of eToro is similar to XTB because it is also a broker that offers investment in other products. Plus, it has one of the most advanced social commerce networks available.
The broker also has a good stock trading offer (buy target). It does not charge custody fees or charge dividend fees.
If you want to know more about eToro and XTB, you can consult our comparison prepared in Rankia. In it, you can have a deeper understanding of all the advantages and conditions.
Another broker chooses to be able to trade effectively to find dividends, because they do not have to pay escrow fees or receive dividends.
For Spanish shares, the operating fee is set at 2 euros, plus 0.05% of the value. But the maximum amount is 10 euros. The commission for the sale of international shares depends on the market in which you operate, for example, the cost of investing in German securities is 4 euros plus 0.05% (up to 60 euros).
However, if dividends are collected in a currency other than the euro, DeGiro charges a 0.1% currency conversion fee.
We have closed the list of the best brokers for physical investment dividends that are characterized by discounts and preferential interest rates to clients: ING Broker Naranja.
The ING Naranja broker is an entity that does not charge custody fees or dividend fees. For companies in the Spanish market, if the amount to be operated does not exceed 30,000 euros, an operating commission of 8 euros will be charged.
The price at which the securities can be sold on the national market starts at 5 euros per transaction (when the amount does not exceed 100 euros). In foreign markets, the purchase and sale price can range between 15 and 30 euros (depending on the country / region).
Like most brokers I’ve seen so far, Interactive Brokers doesn’t ask for escrow fees or collect dividends, making it one of the best brokers to invest in dividends.
Interactive Brokers takes a commission for the sale of Spanish shares. The transaction price is 0.1% of the transaction value. The minimum limit for each order is 4 Euros.
In the international market, operating expenses may vary. However, they are generally not taller. For example, for a French share order denominated in euros, this is the same as a national share order. However, for US stocks, US $ 0.005 per share (minimum US $ 1) applies.
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In any case, Interactive Brokers has two commission structures: fixed commissions and tiered commissions. The hierarchical structure means that the commissions are reduced according to the volume, which makes it suitable for large transactions. Those shown belong to the fixed commission structure.