As Co-Founder of El Fondo, David leverages his experience managing complex relationships with the world’s largest asset allocators at KKR, alongside his strategic background at the German Stock Exchange and Fidelity, to drive investment excellence.
Getting a deposit in your brokerage account every single month is an appealing idea, and it is one reason "monthly dividends" has become such a common search in Mexico. The honest version is less magical but more useful: monthly income is real, but the yield advertised on a fund's page is not what lands in your account. Between the US withholding tax and the fund's own costs, a headline yield of 3.5% can shrink to something closer to 3% before you have spent a peso. This guide explains how dividend income actually works for an investor based in Mexico, and how to judge any dividend fund or stock for yourself instead of chasing the biggest number.
Where a "monthly" paycheck actually comes from
Most individual US companies pay dividends four times a year, not twelve. So the "monthly" part almost always comes from one of two places: an ETF that bundles many payers and staggers their distributions, or a fund that writes options to generate income. Some well-known dividend ETFs pay quarterly (Schwab's SCHD is a popular example), while others - such as JPMorgan's JEPI or Invesco's SPHD - distribute every month. The monthly rhythm is a convenience feature, not a sign of a better investment. A quarterly fund can easily out-earn a monthly one over a full year; what matters is the total you collect, not how often it arrives.
It also helps to separate two things people lump together. Dividend yield is the income a fund pays as a percentage of its price. Total return is that income plus (or minus) the change in the fund's price. A fund can pay a fat monthly dividend and still lose you money if its share price is sliding. Income is only one half of the result.
The tax that quietly shrinks your yield
Here is the part most yield charts hide. When a US-domiciled fund or company pays a dividend to a foreign investor, the United States withholds tax at source before the money ever reaches you. The default rate is 30%, but Mexico has a tax treaty with the US that lowers it to 10% on dividends - provided your broker has a valid W-8BEN form on file for you.
The W-8BEN is a short form that certifies you are a non-US resident and claims the treaty rate. Most serious international brokers ask you to sign it when you open the account. If you skip it, the US withholds the full 30% instead of 10% - a difference that comes straight out of your income. Confirm your broker has this on file; it is the single cheapest way to protect a dividend strategy.
A worked example makes it concrete. Suppose a fund pays a 4% gross dividend yield on a 100,000 MXN position - that is 4,000 MXN a year on paper. With the treaty rate, the US keeps 10%, so about 3,600 MXN reaches you. Without the W-8BEN, it keeps 30%, and only 2,800 MXN arrives. Same fund, same yield, but a 20-percentage-point gap in what you actually collect, decided entirely by a form.
The US withholding is not the end of the story. As a Mexican tax resident you must also report foreign dividend income to the SAT, and you may be able to credit the US tax already withheld against what you owe in Mexico. Rules change and personal situations differ, so treat the numbers here as an illustration and confirm your own case with a Mexican tax advisor.
Expense ratio: the second bite
After the tax comes the fund's own fee, the expense ratio - the annual percentage a fund charges to run itself, deducted quietly from returns rather than billed to you. It sounds trivial at 0.06% and less trivial at 0.35% or higher, which is common for options-income funds. On a long horizon it compounds against you. A broad dividend ETF might charge 0.06% while a monthly options-income fund charges 0.35%; on a 100,000 MXN position that is 60 MXN versus 350 MXN a year, every year, whether or not the fund performs.
How to read a dividend fund's real yield
Put those pieces together and you can size up any dividend ETF or stock without trusting the marketing number. Start from the gross yield the fund advertises, subtract the withholding that will actually apply to you, then subtract the expense ratio. What remains is a rough estimate of what you keep.
Gross yield: the headline number on the fund's page, before any deductions.
After US withholding: multiply by 0.90 if you have filed a W-8BEN (10% treaty rate), or by 0.70 if you have not (30% default).
After the expense ratio: subtract the fund's annual fee percentage.
Currency reality: you are paid in US dollars but you spend in pesos, so the peso-dollar exchange rate can add to or eat into your real income.
That last point deserves emphasis. A dividend paid in dollars is exposed to currency risk: if the peso strengthens against the dollar, your income buys fewer pesos than you expected; if it weakens, more. For income you plan to spend in Mexico, that swing can matter as much as a few tenths of a percent of yield.
Why the highest yield is usually a warning, not a prize
Beginners naturally sort by yield and pick the top of the list. That is often exactly the wrong instinct. An unusually high yield frequently means the market has pushed the price down because it doubts the payout is sustainable - a yield can look large simply because the share price has collapsed. Very high monthly distributions from options-income funds can also include a return of your own capital dressed up as income, which is not the same as a company sharing profits. A durable, growing dividend from a financially healthy issuer is generally worth more over time than a headline yield you cannot count on.
None of this is a recommendation to buy any particular fund. The point is the method: know your after-tax, after-fee yield, understand where the payout comes from, and weigh the income against total return and currency risk before you commit. No dividend strategy is risk-free - prices fall, dividends get cut, and exchange rates move - but an investor who reads the real numbers is far harder to disappoint.
Legal Notice: Education, not advice. Past results do not guarantee future returns. Investing always involves risks.
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