One new purchase: more Diageo shares
I started August with the purchase of ten more Diageo ADR shares, this increases my annual dividend income by £17.29 (20.66EUR). Diageo is now the second-largest position in my dividend portfolio, it’s one of world’s largest spirits makers with popular brands like Johnnie Walker, Smirnoff, Captain Morgan, Baileys Tanqueray, etc.
Ceteris paribus, I expect to receive after-taxes dividend income in excess of 1286EUR in 2017.This does not take into account future purchases or expected dividend increases.
Is there trouble on the horizon for Belgian dividend investors?
Will dividend investing still be worth it in the future? It’s one of the questions I asked myself when I read a newspaper article last week about a proposal to dramatically increase dividend tax to enable the Belgian government to lower the corporate tax.
Dividend taxation in Belgium is already quite high, we pay 27 percent tax and there are no exemptions or tax credits. What makes it even worse is that most foreign dividends are double-taxed, dividends from US companies for instance get taxed 15 percent in the US plus another 27 percent in Belgium, resulting in a total tax rate of 37.95 percent.
Dividend taxation in Belgium used to be lower but recent governments have steadily increased the base rate, while also eliminating certain more favorable rates, in effort to raise more taxes. More taxation is on the horizon as our government is constantly in need of more money to balance the budget, but there are also plans to reduce the base rate of the corporate tax. The latter seems good on the surface but unfortunately it could be pretty bad for me.
While Belgium has a high corporate tax rate of 33.99 percent, the effective tax rate can be a lot lower due to measures like the notional interest deduction, the latter saves companies billions in taxes. Some politicians hope to reduce the base rate to 25 percent or even to 20 percent but this is going to require a lot of money. The High Council of Finance calculated that lowering the corporate tax rate to these levels would require the elimination of the notional interest deduction as well as much higher dividend taxation.
So what kind of rates are we talking about? A recent article in De Tijd explained dividend taxation would have to increase to 34 percent or perhaps even as much as 38 percent! Should this come to pass, I would have to reconsider my dividend investing strategy, especially because my portfolio contains mostly foreign companies.
It could be just a false alarm, but I’m afraid taxation is a potentially big headwind.
Finished a book: Dream Big
I finally finished reading Dream Big, a book that describes the rise to success of Jorge Paulo Lemann, Marcel Telles and Beto Sicupira, aka the Brazilian trio behind 3G capital. It’s an enjoyable story that details where these men came from and how they achieved the seemingly impossible. It goes into detail about how the trio formed their unique partnership and how they developed their remarkable management style that focuses heavily on frugality and meritocracy.
Most of the book deals with how they build up Garantia and transformed companies like Brazilian retail chain Lojas Americanas and beer maker Brahma. One of the reasons I was interested in reading this book was to learn more about how AB InBev became what it is today but unfortunately the book wasn’t as detailed as I hoped.
There’s a lot of information about how AmBev was created via the merger of Brahma and Antarctica, and how Interbrew merged with AmBev to create InBev, but beyond that the brevity of the book was remarkable. Among other things, I was hoping for a lot more information about the creation of AB InBev, as well as details about the improvements they made but in these areas the book is rather light.
Next on the list is One Up On Wall Street by Peter Lynch.