NZ vs International Dividends: Which is Better for NZ Investors?
Complete comparison of New Zealand and international dividend stocks - tax treatment, yields, risks, and investment strategies
One of the most important decisions for New Zealand dividend investors is whether to focus on domestic (NZX-listed) stocks or venture into international dividend markets. Both options have unique advantages and challenges, from tax treatment to currency exposure. This comprehensive guide compares NZ and international dividends across all key factors to help you make informed investment decisions.
Tax Treatment: The Biggest Difference
NZ Dividends - Imputation Credits
New Zealand dividends come with a powerful tax advantage: imputation credits. These credits represent the 28% company tax already paid on profits, which reduces or eliminates double taxation.
Example: NZ Dividend with Full Imputation
- • Cash dividend: $720
- • Imputation credits: $280 (28% company tax)
- • Gross dividend (before tax): $1,000
- • If your tax rate is 17.5%: You get a $105 refund
- • If your tax rate is 39%: You pay $110 additional tax
- • Effective tax: Only the difference between your rate and 28%
International Dividends - No Imputation Benefits
International dividends don't benefit from NZ imputation credits:
- Australian dividends: Franking credits only work for Australian tax residents (not NZ residents)
- US dividends: 15% withholding tax (under NZ-US tax treaty), then taxed again at your NZ rate
- UK dividends: No withholding tax under treaty, but no credit for UK company tax paid
- Other countries: Withholding tax varies (0-30%), then full NZ tax applies
Example: US Dividend for NZ Investor
- • US dividend declared: $100
- • US withholding tax (15%): -$15
- • Cash received: $85
- • Gross income for NZ tax: $100
- • NZ tax at 33%: $33
- • Less: Foreign tax credit: -$15
- • Additional NZ tax owed: $18
- • Total tax: $33 (no imputation benefit)
Tax Winner: NZ Dividends
For NZ tax residents, domestic dividends are significantly more tax-efficient due to imputation credits. This advantage is especially pronounced for lower-income earners who can receive tax refunds.
Dividend Yields: How Do They Compare?
NZ Dividend Yields
| Company | Typical Yield | Sector |
|---|---|---|
| Contact Energy | 5-7% | Utilities |
| Spark NZ | 6-8% | Telecom |
| ANZ Banking Group | 5-6% | Banking |
| Mercury NZ | 4-5% | Utilities |
Average NZ dividend yield: 4-6% (gross, before imputation credit benefits)
International Dividend Yields
| Market | Avg Yield | Notable High-Yielders |
|---|---|---|
| United States | 1.5-2% | REITs: 3-5%, Utilities: 3-4% |
| Australia | 4-5% | Banks: 5-7%, Telcos: 5-6% |
| United Kingdom | 3-4% | Oil: 4-6%, Utilities: 4-5% |
| Europe | 2-3% | Telecoms: 5-7%, Utilities: 4-6% |
Yield Winner: Mixed
NZ offers competitive yields (4-6%) compared to developed markets. Australian yields are similar, but you lose the imputation benefit. US yields are lower overall, but US REITs and certain sectors offer attractive yields. After accounting for tax, NZ dividends often provide better after-tax yields.
Currency Risk: A Major Consideration
NZ Dividends - No Currency Risk
When you invest in NZX-listed stocks:
- Dividends paid in NZD
- No exchange rate fluctuations affecting dividend income
- Predictable cash flow for budgeting
- No currency conversion fees
International Dividends - Currency Exposure
Foreign dividends introduce currency risk:
Example: US Dividend Currency Impact
- • You own $10,000 USD of US stocks yielding 3%
- • Annual dividend: $300 USD
- • If NZD/USD = 0.60: You receive $500 NZD
- • If NZD/USD = 0.65: You receive $462 NZD
- • Currency movement: 7.6% impact on dividend income
Over time, a stronger NZD reduces your dividend income from foreign stocks (and vice versa).
Managing Currency Risk
Strategies to manage currency exposure:
- Diversify currencies: Hold assets in USD, AUD, EUR, GBP
- View as long-term: Currency fluctuations average out over decades
- Match expenses: If you plan to spend overseas, foreign dividends provide natural hedge
- Use hedged funds: Some NZ-domiciled funds offer currency-hedged international exposure
FIF Tax Rules: The International Complication
What Are FIF Rules?
Foreign Investment Fund (FIF) rules apply when you hold foreign shares worth over $50,000 (in total, across all foreign investments). These rules change how international investment income is taxed in New Zealand.
How FIF Rules Work
Under FIF rules, you typically use the Fair Dividend Rate (FDR) method:
- You're taxed on 5% of the opening market value of your foreign shares each year
- This applies regardless of actual dividends or gains
- You don't pay tax on actual dividends received - the 5% deemed income replaces this
- If your portfolio falls in value, you might owe tax on income you didn't receive
FIF Example: $100,000 US Portfolio
- • Opening value: $100,000 NZD
- • FDR deemed income: $5,000 (5%)
- • Tax at 33%: $1,650
- • This applies even if you only received $2,000 in actual dividends
- • If the portfolio falls to $80,000, you still owe tax on $5,000 deemed income
Australian Shares Exception
Australian shares listed on the ASX are exempt from FIF rules (under the trans-Tasman tax treaty). You're taxed on actual dividends received, making Australian investments simpler than other foreign markets.
Avoiding FIF Rules
Strategies to avoid FIF complications:
- Keep total foreign investments under $50,000 threshold
- Invest through NZ-domiciled PIE funds (they handle FIF, you pay PIR tax instead)
- Focus on Australian shares (FIF-exempt)
- Consider if the complexity is worth international diversification
Market Access and Diversification
NZ Market - Limited but Quality
The NZX offers:
- ~150 listed companies (small vs 3,000+ on ASX, 7,000+ on US markets)
- Concentrated sectors: Heavy weighting in utilities, telecoms, property, banking
- Missing sectors: Limited tech, healthcare, industrials, consumer goods
- Quality companies: Many stable, mature businesses with solid dividend track records
- Home bias advantage: Better knowledge of local companies and economy
International Markets - Vast Choice
International markets offer:
- Sector diversity: Access to tech (Apple, Microsoft), healthcare (Johnson & Johnson), industrials (3M), consumer goods (Coca-Cola, Procter & Gamble)
- Dividend aristocrats: US companies with 25+ years of consecutive dividend increases
- Geographic diversification: Reduce reliance on NZ economy
- Global brands: Invest in companies you use daily (Amazon, Google, Visa)
Diversification Winner: International
International markets offer significantly more diversification. However, for dividend-focused investors, NZ's concentrated high-yielding sectors (utilities, telecoms) can be advantageous.
Practical Considerations
Brokerage Costs
NZ Shares:
- • Sharesies: 1.9% (min $1.50)
- • Hatch: NZ shares via international access (~$3 USD/trade)
- • ASB Securities: $30/trade
- • Jarden Direct: $30/trade
International Shares:
- • Hatch (US): $3 USD/trade
- • Stake (US, AU): $3 USD/trade (AU free)
- • Interactive Brokers: $1-$10 USD depending on market
- • Currency conversion fees: 0.5-1% on top
Reporting and Tax Complexity
| Aspect | NZ Dividends | International Dividends |
|---|---|---|
| Tax return | Simple - pre-filled if broker reports | Complex - FIF calculations required |
| Record keeping | Minimal | Extensive - track all transactions, exchange rates, opening values |
| Accountant needed? | Rarely | Often recommended for >$50k foreign holdings |
| Time to manage | Low | High |
Recommended Strategies for NZ Investors
Strategy 1: NZ-Focused (Low Complexity)
Best For:
Investors seeking tax efficiency, simplicity, and maximum after-tax yield
Allocation:
- • 80-100% NZ dividend stocks
- • Focus on fully imputed dividends
- • Diversify across utilities, telecoms, banking, property
- • Add small Australian exposure (FIF-exempt) for diversification
Pros:
- ✓ Maximum tax efficiency from imputation credits
- ✓ No currency risk
- ✓ Simple tax reporting
- ✓ High after-tax yields
Cons:
- ✗ Limited sector diversity
- ✗ Concentration risk in NZ economy
- ✗ Smaller company selection
Strategy 2: Balanced Approach via PIE Funds
Best For:
High earners (33%+ tax rate) wanting international diversification without FIF complexity
Allocation:
- • 40% NZ dividend stocks (direct ownership)
- • 40% International dividend ETF/PIE fund
- • 20% Australian dividend stocks (FIF-exempt)
Pros:
- ✓ PIE funds handle FIF complexity
- ✓ Tax capped at 28% for high earners
- ✓ Geographic diversification
- ✓ Simplified reporting
Cons:
- ✗ Fund fees (0.5-1% annually)
- ✗ Less control over stock selection
- ✗ Currency risk on international holdings
Strategy 3: Global Dividend Hunter (Advanced)
Best For:
Experienced investors comfortable with FIF rules and willing to manage complexity for diversification
Allocation:
- • 30% NZ dividend stocks
- • 30% Australian dividend stocks (BHP, Commonwealth Bank, Telstra)
- • 20% US dividend aristocrats (J&J, P&G, Coca-Cola)
- • 20% International REITs and high-yield sectors
Pros:
- ✓ Maximum diversification
- ✓ Access to global dividend aristocrats
- ✓ Currency diversification
- ✓ Exposure to all major sectors
Cons:
- ✗ Complex FIF calculations
- ✗ Accountant recommended
- ✗ Currency risk
- ✗ Higher brokerage and admin costs
Summary: Which is Better?
Choose NZ Dividends If:
- You prioritize tax efficiency and after-tax yield
- You want simple, hassle-free investing
- You're in a lower tax bracket (imputation refunds)
- You prefer no currency risk
- You're comfortable with NZ economic exposure
Add International Dividends If:
- You want sector diversification (tech, healthcare, industrials)
- You're comfortable with currency fluctuations
- You can manage FIF complexity or use PIE funds
- You have >$200,000 to invest (spreading FIF admin costs)
- You want exposure to global economic growth
Recommended Starting Point:
Start with NZ dividend stocks to maximize tax benefits and simplicity. Once your portfolio exceeds $100,000, consider adding 20-30% international exposure via PIE funds or Australian stocks. Gradually increase international allocation as your portfolio grows and you become comfortable with the complexity.
Related Resources
Dividend Tax Guide
Complete guide to RWT, imputation credits, and tax strategies
PIE Funds Guide
How PIE funds simplify international investing for high earners
NZ Dividend Stocks
Browse all NZ dividend-paying stocks with imputation details
Dividend Calculator
Calculate after-tax returns for NZ and international dividends