When thinking about the US stock market, names like Apple, NVIDIA, Microsoft, Meta, and Tesla often come to mind. These are market leaders known for their innovation and rapid growth. However, one thing they generally have in common is this: they pay little to no dividends.
This is largely by design. These companies prefer to reinvest profits into expanding their business or building financial resilience. It’s a strategy that tends to pay off during bull markets, as seen by their stellar long-term performance. But what if your goal is income, not just growth?
Dividend Stocks and Equity Income Funds
Outside of the tech giants, many established US companies do pay generous dividends names like ExxonMobil, Pfizer, and Coca-Cola come to mind. These are businesses with strong cash flow and stable business models, often returning profits to shareholders in the form of dividends.
So, are US dividend stocks or dividend-focused equity funds worth considering for Singapore-based investors?
Pros of US Dividend Stocks/Funds:
- Steady Income: Dividend stocks provide regular cash payouts, which can be appealing for retirees or income-seeking investors.
- Lower Volatility: These stocks often belong to mature companies that are less volatile than high-growth tech stocks.
Resilience in Flat or Bear Markets: During periods like 2000–2008, when the market was largely sideways, dividend-paying stocks offered better returns through consistent income.
But What Are the Downsides?
❌ 1. Limited Capital Growth Potential
While dividend stocks offer income, they often lack significant capital appreciation. For instance, between 2015 and 2025, a growth stock like Apple (AAPL) rose over 500%, while many high-dividend stocks such as Pfizer or ExxonMobil saw less than 10% capital growth. That’s a massive opportunity cost.
❌ 2. Withholding Tax on Dividends
As a Singapore investor, you’re subject to a 30% withholding tax on US dividends (reduced to 15% under the US-Singapore tax treaty). This means you receive only 85% of your dividends, reducing the effective yield.
A Smarter Alternative: Sell Growth Stocks for Income
Instead of relying on dividends, Singapore-based investors can consider an alternative income strategy:
Systematic Sell-Off Strategy
- Buy high-growth US stocks (e.g., Apple, Microsoft, Google).
- Sell a small portion of your holdings each month to generate a steady income stream.
- No dividend tax applies, and importantly, Singapore does not impose capital gains tax on US stock sales.
This strategy allows you to:
- Avoid withholding taxes altogether
- Capture higher total returns from growth
- Control your income stream (flexibility to draw more or less)
Important Note: For Non-US Residents Only
This strategy works best only if you’re not a US citizen or tax resident. As a Singapore tax resident, you can enjoy this benefit fully and legally.
Conclusion: Be Smart About Income Investing
US dividend stocks offer stability and income, but the opportunity cost and withholding tax can be significant. A more efficient approach for Singapore investors may be to build a growth-oriented portfolio and draw income by systematically selling shares, tax-free.
Let us help you design a smart income strategy that works with your tax advantages.
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