{"id":99515,"date":"2025-02-20T13:46:16","date_gmt":"2025-02-20T13:46:16","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/investing\/dividend-leakage-understanding-the-hidden-cost\/"},"modified":"2025-02-20T13:46:16","modified_gmt":"2025-02-20T13:46:16","slug":"dividend-leakage-understanding-the-hidden-cost","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=99515","title":{"rendered":"Dividend Leakage – Understanding the Hidden Cost"},"content":{"rendered":"


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Dividend leakage is an expense that many investors accrue without even knowing.<\/p>\n

It\u2019s a hidden cost related to investing in international ETFs<\/a>\/funds<\/a> that\u2019s not reported in their factsheet or prospectus.<\/p>\n

In this post, I\u2019ll explain what is dividend leakage and how to calculate it yourself.<\/p>\n

\nDividend Leakage Explained
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Let\u2019s say you\u2019re a non-US person looking to invest using the S&P 500 as a benchmark<\/a>.<\/p>\n

So, you find an adequate (reputable & low cost) index fund<\/a> in your country. Assuming that it\u2019s a distributing fund, it means that the following will happen:<\/p>\n

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  1. The underlying companies will issue dividend, withholding US dividend tax<\/li>\n
  2. The fund will receive the dividends and pay them out to you, withholding your country\u2019s dividend tax<\/li>\n<\/ol>\n

    Dividend Leakage\u00a0<\/strong>represents the taxes that \u201cleak\u201d while the underlying companies distribute dividends to the fund.<\/p>\n

    Note that you don\u2019t have any bureaucratic burden because of this.<\/p>\n

    It\u2019s just an extra (hidden) cost of international investing.<\/p>\n

    \nAn Example of Dividend Leak
    \n<\/h2>\n

    Okay, let\u2019s get an actual ETF for an example: VUSA<\/strong> (Vanguard S&P 500 UCITS ETF).<\/p>\n

    Most of you are already familiar with it, so just a quick summary of its key characteristics:<\/p>\n