"Why don't we get the same yields as US investors?" It's the question we hear most often from European investors, and frankly, we understand the frustration. You see a popular US dividend fund yielding 4.2%, but when you look at European alternatives, the numbers just don't match up.
Today, we're going to give you the honest, transparent answer—no marketing spin, no sugar-coating. Because at Meridian Global Investors, we believe you deserve the truth about cross-border investing, even when that truth is complex.
The Burning Question: Why Don't We Get the Same Yields as US Investors?
The Simple Truth
The answer is simple and unavoidable: taxes. Specifically, US dividend withholding tax that applies to all non-US investors.
We've all been there. You're researching dividend investments and discover attractive yields on popular US dividend ETFs. Then you look at European UCITS alternatives tracking similar strategies and wonder: "Where did part of my yield disappear to?"
The missing yield isn't due to poor fund management, hidden fees, or inferior strategy execution. It's the result of a structural reality that every European investor faces when accessing US dividend-paying stocks: cross-border taxation.
A Real Investor's Frustration
"I saw that American dividend funds were yielding over 3%, but when I looked at European options, I could only find 2.5% yields. I thought European fund managers were just not as good at picking dividend stocks."
— Hans, Independent Financial Advisor, Amsterdam
Hans's assumption is completely understandable—and completely wrong. The difference has nothing to do with fund manager skill and everything to do with tax treaties between nations.
How US Withholding Tax (WHT) Works: A Simple Explanation
When a US company pays a dividend, the US government automatically withholds a tax before that dividend reaches foreign investors. This isn't negotiable, discretionary, or avoidable—it's written into US tax law and enforced automatically.
The Tax Treaty Reality
For UCITS ETFs domiciled in Ireland (which includes virtually all European-accessible US equity funds), the US-Ireland tax treaty sets the withholding tax rate at 15%. This rate is actually quite favorable—many countries face 30% withholding tax on US dividends according to standard US tax policy.
Without Withholding Tax
With 15% Withholding Tax
This simple math explains the "missing" yield. If a basket of US stocks generates a 3.5% gross dividend yield, European investors receive approximately 2.97% after the 15% withholding tax is applied. This happens before management fees are even considered.
Important Note
This withholding tax is applied at the source by the US government, not by your fund manager or platform. It happens automatically and is completely beyond the control of European investment providers.
Your Fund vs. A DIY Approach: The Level Playing Field
Here's the critical point that many investors miss: If you bought US dividend stocks directly as a European individual investor, you would face the exact same 15% withholding tax—or potentially even higher rates, depending on your country's specific tax treaty with the United States.
Comparing Your Options
| Investment Method | US Withholding Tax | Additional Complexity | Net Result |
|---|---|---|---|
| Direct US Stock Purchase | 15%+ (varies by country) | Currency risk, individual stock risk, tax reporting | Same or worse yield |
| Irish UCITS ETF | 15% | Professional management, diversification, simplified reporting | Same yield + added value |
| US-Domiciled ETF (Direct) | 30% (standard rate) | Complex tax reporting, estate tax issues | Significantly worse |
The UCITS structure isn't the cause of the tax drag—it's actually the solution to minimizing it. Irish-domiciled funds benefit from Ireland's extensive network of tax treaties, ensuring European investors get the most favorable withholding tax rates available.
Beyond tax efficiency, UCITS funds provide professional management, instant diversification, currency hedging options (where applicable), and simplified tax reporting. You're not paying extra for lower yields—you're paying for expertise to navigate complex cross-border investing while maximizing your after-tax returns.
The Bottom Line
A quality UCITS dividend fund doesn't create the tax drag—it minimizes it while providing professional portfolio management, diversification, and regulatory protection that individual stock picking cannot match.
The Honest Conclusion: Focus on What You Can Control
US dividend withholding tax is an unavoidable reality of cross-border investing. No European fund manager, regardless of skill or marketing claims, can eliminate this structural cost. Anyone promising US-level yields on US dividend stocks is either misleading you or planning to take excessive risks with your capital.
What You Cannot Control
- • US dividend withholding tax (15% minimum)
- • Currency exchange rate fluctuations
- • International tax treaty changes
- • US government policy on foreign investment
What You Can Control
- • Investment strategy and stock selection quality
- • Fund management fees and expense ratios
- • Portfolio diversification and risk management
- • Focus on total return vs. yield obsession
This is where the conversation should focus: not on the unavoidable tax reality, but on building the best possible investment strategy within those constraints. At Meridian Global Investors, we believe in optimizing what we can control—selecting high-quality dividend-growing companies through our disciplined screening process.
Our Commitment to Transparency
We could easily market our funds with pre-tax US yields and let you discover the reality later. Instead, we choose radical transparency because we believe informed investors make better long-term partners.
Yes, cross-border dividend investing comes with tax costs. But it also comes with access to some of the world's highest-quality dividend-growing companies.
The question isn't whether to accept the tax drag—it's whether to accept it from a fund that prioritizes marketing spin or one that prioritizes your long-term investment success.
The Bigger Picture
Successful dividend investing isn't about maximizing today's yield—it's about building a portfolio of quality companies that can grow their dividends over time, providing increasing income and capital appreciation.
A 2.8% starting yield that grows by 7% annually will outperform a 4.0% yield that remains flat or, worse, gets cut during the next economic downturn.