Should UK Investors Buy US Dividend Stocks?
Dividends are a major source of passive income for investors, but when comparing US vs UK dividend stocks, there are key differences UK investors must understand.
In this article we’ll break down:
- Which market offers higher dividend yields (UK or US?)
- Tax implications for UK investors buying US dividend stocks
- Sectors with the best dividend-paying stocks in both markets
- Dividend growth vs high yield – which is better for UK investors?
- How to build a hybrid portfolio with the best of both worlds
Quick Answer:
- UK stocks generally have higher dividend yields but slower growth.
- US stocks typically have lower yields but faster-growing dividends.
- A hybrid approach (combining both) may offer better diversification and returns.
Before buying US dividend stocks, UK investors should complete a W-8BEN form to reduce US withholding tax from 30% to 15%.
1. Understanding Dividend Yields: Why Do US and UK Stocks Differ?
A dividend yield measures how much a company pays out in dividends relative to its share price. We explained a bit more some weeks ago about the key dates for dividend stocks.
UK Dividend Stocks: Higher Yields, Slower Growth
- Average Dividend Yield: 3-6%
- Best for: Income-focused investors seeking high but stable dividends
UK companies, especially in energy, banking, and consumer staples, prioritise dividends over stock growth.
The FTSE 100 includes top dividend payers like:
- BP (5.3%)
- HSBC (5.1%)
- British American Tobacco (7.7%)
Downside: UK stocks have lower dividend growth and limited exposure to high-growth sectors like tech. You may then have a ‘stable’ income but looking at how your capital is not growing or not that much.
We did a list with 10 stocks that have a good combination of dividends and growth stocks in the UK stock market
US Dividend Stocks: Lower Yields, Faster Growth
- Average Dividend Yield: 1-3%
- Best for: Investors seeking consistent dividend growth over time
US companies increase dividends yearly, offering compounding growth potential.
The S&P 500 Dividend Aristocrats (stocks that have raised dividends for 25+ years) include:
- Johnson & Johnson (3.0%)
- Coca-Cola (3.1%)
- Microsoft (0.9%)
Downside: US stocks reinvest more profits into business growth, meaning lower initial payouts. If you look at this on the good side, if they have business growth you may not see your dividends at the start, but will see how the business growth goes into the share price and your capital after all.
We did a little list with some of the Top 5 Dividend Aristocrats to buy in 2025, although if you are looking at more diversification, we also selected the Top 25 Dividend Champions Stocks where we were focussing on a great combination of dividend yield, dividend growth, earnings per share growth and 5 years growth.
2. UK Tax Implications of US Dividend Stocks (Read Before You Buy!)
UK Dividend Tax (For UK Stocks)
- First £500 of dividend income = tax-free (2024/25 allowance)
- After £500, dividends are taxed at:
- 8.75% (Basic Rate)
- 33.75% (Higher Rate)
- 39.35% (Additional Rate)
US Withholding Tax (For US Stocks)
- Default: 30% tax on dividends paid to UK investors
- Reduced Rate: 15% if you submit a W-8BEN form
- UK investors can reclaim any excess tax paid via a Self-Assessment Tax Return
Example:
If a UK investor receives $1,000 in US dividends:
- Without W-8BEN: $300 withheld
- With W-8BEN: Only $150 withheld
Solution: File a W-8BEN form with your broker before buying US dividend stocks to avoid overpaying tax.
3. Best Dividend-Paying Sectors in US & UK Markets
Best UK Dividend Sectors & Stocks
- Energy – BP (5.3%), Shell (3.8%)
- Banks – HSBC (5.1%), Lloyds (4.7%)
- Consumer Staples – Unilever (3.6%), British American Tobacco (7.7%)
Best US Dividend Sectors & Stocks
- Healthcare – Johnson & Johnson (3.0%), Pfizer (4.2%)
- Consumer Staples – Coca-Cola (3.1%), Procter & Gamble (2.4%)
- Tech (Lower Yield, High Growth) – Microsoft (0.9%), Apple (0.6%)
Key takeaway: UK stocks provide higher yields, while US stocks offer faster dividend growth.
4. Should You Focus on Dividend Growth or High Yields?
| Metric | UK Stocks | US Stocks |
|---|---|---|
| Dividend Yield | Higher (3-6%) | Lower (1-3%) |
| Dividend Growth | Slower | Faster |
| Stock Price Growth | Slower | Faster |
| Best For | Income-focused investors | Long-term growth investors |
Hybrid Strategy: Combine UK high-yield stocks with US dividend growth stocks for balanced returns.
5. Building a Dividend Portfolio as a UK Investor
Suggested Portfolio Allocation:
- 50% UK High-Yield Stocks (BP, HSBC, Unilever)
- 30% US Dividend Growth Stocks (Johnson & Johnson, Coca-Cola, Microsoft)
- 20% US High-Dividend Stocks (Realty Income, Verizon)
Reinvest dividends for compound growth over time, you should remember how compound interest works in the stock market.
Conclusion: Which is Better – US or UK Dividend Stocks?
Best for High Income: UK stocks (higher dividend yields)
Best for Long-Term Growth: US stocks (higher dividend growth)
Best Strategy: A hybrid approach combining both!
Final Action Steps:
- UK Investors: Submit a W-8BEN form to cut US tax from 30% to 15%.
- Dividend Growth Seekers: Look at US Dividend Aristocrats.
- High-Yield Investors: Stick with FTSE 100 dividend giants.
What’s your dividend strategy? Let us know in the comments!
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