Capital Gains Vs. Dividends: Demystifying Your Investment Returns

Capital gains or low-payout firms are preferable for investors as they avoid the periodic distribution of dividends. As the market value changes over time, shareholders are uncertain about the profit company will offer to them.

1. Sharp Asset Management Inc. Capital Gains vs. Dividends: Demystifying Your Investment Returns 416-722-9009 [email protected]

2. What Are Capital Gains? Capital gains are the profit that individuals or businesses make when they sell an asset, such as stocks and bonds, land, an investment property, a cottage, a building, or equipment used for a business. Generating capital gains is a good thing. It means the initial investment has grown in value and you earned a profit after the sale.

3. What Is a Dividend? A dividend is a portion of a company's profit that is distributed to its shareholders. Think of dividends as a kind of reward for shareholders for believing in the company and investing their money in it.

4. Difference Between Capital Gains and Dividends Feature Capital Gains Dividends Definition Profit earned by selling an investment or asset for more than the purchase price. A portion of a company's profits distributed to its shareholders. Example Scenarios Selling stocks at a higher price than you bought them, selling real estate (excluding your principal residence in Canada) for a gain. A company like Apple distributing a portion of its profits to its shareholders.

5. Difference Between Capital Gains and Dividends Feature Capital Gains Dividends Frequency One-time event triggered by the sale of the investment/asset. Regular payments (quarterly or annually) determined by the company's board of directors. Taxation 50%-67% of the capital gain is included in taxable income. In Canada, dividends can be taxed as ordinary income or as qualified dividends. Qualified dividends generally receive a lower tax rate.

6. Difference Between Capital Gains and Dividends Feature Capital Gains Dividends Control Investor decides when to sell the asset. Company decides the payout amount and frequency. Additional Considerations Short-term capital gains may be taxed at a higher rate. Dividends may not be guaranteed and can fluctuate depending on the company's performance.

7. Are Capital Gains or Dividends Good for Income Seekers? Capital gains are generally not considered ideal for income seekers. Here's why: Capital gains : One-time profit from selling investments, not a steady income source like dividends. Unpredictable timing : You control when you sell, but market conditions and asset performance determine the timing and amount of your capital gains. This makes it difficult to rely on them for consistent income. Tax implications: While 66.7% of capital gains are included in taxable income in Canada if annual income from them is greater than $250,000, they can still be taxed at a higher rate than qualified dividends.

8. Contact us 21 Greenwin Village Road Toronto, Ontario, M2R 2R9 416-722-9009 [email protected] P.O BOX 74539 Humbertown Centre, 270 The Kingsway Toronto, ON M9A 5E2 www.sharpasset.com

9. Thank you