I love Dividend Distributions

[UnrealizedPotential]

I just talked to a mutual fund specialist from T.Rowe Price. The opinion there was that the reinvested capital gains and dividends will compound at a faster rate going forward compared against a scenario in which no dividends and capital gains were available to reinvest.

 

[dtbach]

+1 I hate them too! I've about 300K CG loss carried over from Y2K days and this dividend distribution forces me to pay more taxes and also pushes my AGI over Roth IRA limit so can not contribute to Roth IRA for my wife.(I'm already using backdoor for myself)

My heart goes out to your woeful situation. . . . .

 

[mathjak107]

i just talked to a mutual fund specialist from t.rowe price. The opinion there was that the reinvested capital gains and dividends will compound at a faster rate going forward compared against a scenario in which no dividends and capital gains were available to reinvest.

call them back and tell them to do the math. They are wrong.

it is mathematically impossible. this is simple math,.


lets take a 100 stock ,10 shares. that is 1000.00 dollars.


lets make it easy and have it pay 1 dividend a year.


so your 1,000 goes up 20% so you have 1200.00 and a dividend is declared .
a 10% dividend is paid, that is 120 bucks and you reinvest it so the next open is adjusted downward and you start the new year with 11.111 shares worth 108 at the open .


now market action will take over and take the stock over the next year to wherever it lands. we are figuring a once a year dividend to make it simple , if it was quarterly then it would move from the open to wherever the quarter takes it.

your starting balance for the new year in this case is 1200.00 bucks.


11.111 shares at 108.00 a share = 1200.00 dollars.


it is exactly the same as if there was no dividend and the stock went up the same 20%.


if there was no dividend your starting balance for this new year would have been 10 shares at 120 a share. the same opening balance of 1200 bucks.


1200.00 dollars is the new watermark for the new year and now that compounds the same way over and over each year..

there is zero difference in compounding..


it is the total opening dollar value the gains or losses apply to not the amount of shares.


the mechanics of a dividend and reinvestment can't play out any other way. total return is total return is total return no matter how you figure .

 

[redduck]

...a penny doubled and compounded every day for only 31 days is over 10 million bucks . such is the power of compounding...

try as I might, i can't get anybody to give me this deal. so, is this just a theory or has it actually been done in real life? also, i was wondering, would two pennies doubled and compounded every day, one for 15 days and one for 16 days, would be over 10 million bucks?

thank you.

 

[dallas27]

call them back and tell them to do the math. They are wrong.

it is mathematically impossible. this is simple math,.


lets take a 100 stock ,10 shares. that is 1000.00 dollars.


lets make it easy and have it pay 1 dividend a year.


so your 1,000 goes up 20% so you have 1200.00 and a dividend is declared .
a 10% dividend is paid, that is 120 bucks and you reinvest it so the next open is adjusted downward and you start the new year with 11.111 shares worth 108 at the open .


now market action will take over and take the stock over the next year to wherever it lands. we are figuring a once a year dividend to make it simple , if it was quarterly then it would move from the open to wherever the quarter takes it.

your starting balance for the new year in this case is 1200.00 bucks.


11.111 shares at 108.00 a share = 1200.00 dollars.


it is exactly the same as if there was no dividend and the stock went up the same 20%.


if there was no dividend your starting balance for this new year would have been 10 shares at 120 a share. the same opening balance of 1200 bucks.


1200.00 dollars is the new watermark for the new year and now that compounds the same way over and over each year..

there is zero difference in compounding..


it is the total opening dollar value the gains or losses apply to not the amount of shares.


the mechanics of a dividend and reinvestment can't play out any other way. total return is total return is total return no matter how you figure .

If only the dividend payment speed/price were so efficient. I have a feeling the time between ex-div and pay date provides and opportunity for some middle man to screw everyone by a penny. The price ex-div is market set, the company doesn't' set a "Fair" price base on payout asset loss.

 

[harley]

To those of you who are arguing with mathjack, please do us the favor of backing up your claims with math. Math doesn't lie, although FAs and mutual fund advisors have been known to. If you are right, it should be easy to prove.

 

[mathjak107]

If only the dividend payment speed/price were so efficient. I have a feeling the time between ex-div and pay date provides and opportunity for some middle man to screw everyone by a penny. The price ex-div is market set, the company doesn't' set a "Fair" price base on payout asset loss.

by finra law it has to be reset by the amount paid out rounded off to the higher minimum quotation variation

"5330. Adjustment of Orders
(a) A member holding an open order from a customer or another broker-dealer shall, prior to executing or permitting the order to be executed, reduce, increase, or adjust the price and/or number of shares of such order by an amount equal to the dividend, payment, or distribution on the day that the security is quoted ex-dividend, ex-rights, ex-distribution, or ex-interest, except where a cash dividend or distribution is less than one cent ($0.01), as follows:
(1) Cash Dividends: Unless marked "Do Not Reduce," open order prices shall be first reduced by the dollar amount of the dividend, and the resulting price will then be rounded down to the next lower minimum quotation variation.

(2) Stock Dividends and Stock Splits: Open order prices shall be determined by first rounding up the dollar value of the stock dividend or split to the next higher minimum quotation variation. The resulting amount shall then be subtracted from the price of the order. Unless marked "Do Not Increase," the size of the order shall be increased by first (A) multiplying the size of the original order by the numerator of the ratio of the dividend or split, then (B) dividing the result by the denominator of the ratio of the dividend or split, then (C) rounding the result to the next lowest share.

(3) Dividends Payable in Either Cash or Securities at the Option of the Stockholder: Open order prices shall be reduced by the dollar value of the cash or securities, whichever is greater. The dollar value of the cash shall be determined using the formula in subparagraph (1) above, while the dollar value of the securities shall be determined using the formula in subparagraph (2) above. If the stockholder opts to receive securities, the size of the order shall be increased pursuant to the formula in subparagraph (2) above.
(4) Combined Cash and Stock Dividends/Split: In the case of a combined cash dividend and stock split/dividend, the cash dividend portion shall be calculated first as per subparagraph (1) above, and the stock portion thereafter pursuant to subparagraph (2) above.

 

[UnrealizedPotential]

call them back and tell them to do the math. They are wrong.

it is mathematically impossible. this is simple math,.


lets take a 100 stock ,10 shares. that is 1000.00 dollars.


lets make it easy and have it pay 1 dividend a year.


so your 1,000 goes up 20% so you have 1200.00 and a dividend is declared .
a 10% dividend is paid, that is 120 bucks and you reinvest it so the next open is adjusted downward and you start the new year with 11.111 shares worth 108 at the open .


now market action will take over and take the stock over the next year to wherever it lands. we are figuring a once a year dividend to make it simple , if it was quarterly then it would move from the open to wherever the quarter takes it.

your starting balance for the new year in this case is 1200.00 bucks.


11.111 shares at 108.00 a share = 1200.00 dollars.


it is exactly the same as if there was no dividend and the stock went up the same 20%.


if there was no dividend your starting balance for this new year would have been 10 shares at 120 a share. the same opening balance of 1200 bucks.


1200.00 dollars is the new watermark for the new year and now that compounds the same way over and over each year..

there is zero difference in compounding..


it is the total opening dollar value the gains or losses apply to not the amount of shares.


the mechanics of a dividend and reinvestment can't play out any other way. total return is total return is total return no matter how you figure .

I did call Vanguard and got someone who seemed pretty knowledgeable. It seems you are right Mathjak.The answer he gave me was initially yes and no. Then he changed that, to it will compound differently going forward. Then he said it really will make no difference.I myself still have doubts but only because I do not understand it completely. With all that said it does seem he agreed with you more, so it looks like you are right Mathjak.

 

[dallas27]

by finra law it has to be reset by the amount paid out rounded off to the higher minimum quotation variation

"5330. Adjustment of Orders
(a) A member holding an open order from a customer or another broker-dealer shall, prior to executing or permitting the order to be executed, reduce, increase, or adjust the price and/or number of shares of such order by an amount equal to the dividend, payment, or distribution on the day that the security is quoted ex-dividend, ex-rights, ex-distribution, or ex-interest, except where a cash dividend or distribution is less than one cent ($0.01), as follows:
(1) Cash Dividends: Unless marked "Do Not Reduce," open order prices shall be first reduced by the dollar amount of the dividend, and the resulting price will then be rounded down to the next lower minimum quotation variation.

(2) Stock Dividends and Stock Splits: Open order prices shall be determined by first rounding up the dollar value of the stock dividend or split to the next higher minimum quotation variation. The resulting amount shall then be subtracted from the price of the order. Unless marked "Do Not Increase," the size of the order shall be increased by first (A) multiplying the size of the original order by the numerator of the ratio of the dividend or split, then (B) dividing the result by the denominator of the ratio of the dividend or split, then (C) rounding the result to the next lowest share.

(3) Dividends Payable in Either Cash or Securities at the Option of the Stockholder: Open order prices shall be reduced by the dollar value of the cash or securities, whichever is greater. The dollar value of the cash shall be determined using the formula in subparagraph (1) above, while the dollar value of the securities shall be determined using the formula in subparagraph (2) above. If the stockholder opts to receive securities, the size of the order shall be increased pursuant to the formula in subparagraph (2) above.
(4) Combined Cash and Stock Dividends/Split: In the case of a combined cash dividend and stock split/dividend, the cash dividend portion shall be calculated first as per subparagraph (1) above, and the stock portion thereafter pursuant to subparagraph (2) above.

Ya, price is still set by the market at first trade.


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[mathjak107]

which is going to be based by the automatically lowered offers in the hopper.

 

[dallas27]

Directly from vanguard below. Everyone does NOT pay the same price in the market. Think about how silly what your suggesting is, that 3-10 days after ex-div i can go back and by shares at the ex-div + 1 market open price. Makes no sense. Who would sell those shares at a discount? Assuming it went up.


From vanguard:

How does the reinvestment program work?
When reinvesting dividends, Vanguard Brokerage Services combines the cash distributions from the accounts of all clients who have requested reinvestment in the same security, and then uses that combined total to purchase additional shares of the security in the open market. Vanguard Brokerage will attempt to purchase the reinvestment shares by entering a market order at the market opening on the payable date. The new shares are divided proportionately among the clients' accounts, in whole and fractional shares rounded to three decimal places. If the total purchase can't be completed in one trade, clients will receive shares purchased at the weighted average price paid by Vanguard Brokerage Services.



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[mathjak107]

I did call Vanguard and got someone who seemed pretty knowledgeable. It seems you are right Mathjak.The answer he gave me was initially yes and no. Then he changed that, to it will compound differently going forward. Then he said it really will make no difference.I myself still have doubts but only because I do not understand it completely. With all that said it does seem he agreed with you more, so it looks like you are right Mathjak.

thats why we are all here ,to learn and those who learn the most are those who always question their own beliefs.

as i learn more and more i find the things i argued against i now argue for.

it has been said that the biggest financial blunder folks make is they never sleep with the enemy.

they only hang out with and support the views of those in their camp. kind of like them there bogleheads.

but the wise person joins the other camp for a while and learns their views and it is only then they they can actually see both sides.

anyway as you can see it is just simple math.

we all start each time frame off compounding a set amount of dollars. each time frame that is what gets compounded.

yes m,arket action starts the instant trading opens after that adjustment and it continues on until the end of the time frame.

whatever that amount is when we start again is what compounds again.

but as you see it is all based on dollars , not shares.

hope that makes it clearer.

 

[mathjak107]

Directly from vanguard below. Everyone does NOT pay the same price in the market. Think about how silly what your suggesting is, that 3-10 days after ex-div i can go back and by shares at the ex-div + 1 market open price. Makes no sense. Who would sell those shares at a discount? Assuming it went up.


From vanguard:

How does the reinvestment program work?
When reinvesting dividends, Vanguard Brokerage Services combines the cash distributions from the accounts of all clients who have requested reinvestment in the same security, and then uses that combined total to purchase additional shares of the security in the open market. Vanguard Brokerage will attempt to purchase the reinvestment shares by entering a market order at the market opening on the payable date. The new shares are divided proportionately among the clients' accounts, in whole and fractional shares rounded to three decimal places. If the total purchase can't be completed in one trade, clients will receive shares purchased at the weighted average price paid by Vanguard Brokerage Services.



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don't get confused about the question.

what you say while true really has little to do with the mechanics of whether or not reinvesting dividends adds a benefit. what you are pointing out is related to market action but that really does not support any fact that reinvesting dividends adds an advantage by nature..

the bottom line is no it does not add any inherent advantage. it could just as easily be an advantage when you reinvest as a disadvantage depending on the action the day you buyin but that is market related , not the mechanics of it related.

 

[UnrealizedPotential]

Then we can agree to disagree.Who needs you anyways?

I would like to publicly apologize to RunningBum. Even though I am not happy with some things that he wrote, what I wrote in retaliation was uncalled for.

 

[dallas27]

don't get confused about the question.

what you say while true really has little to do with the mechanics of whether or not reinvesting dividends adds a benefit. what you are pointing out is related to market action but that really does not support any fact that reinvesting dividends adds an advantage by nature..

Excuse me? I said i had a feeling their was opportunity for price manipulation and the market doesn't follow a pure math price setting algorithm. You chose to challenge me by posting a bunch of rules. I said cleary and succinctly the market sets the price, you challenged it again. I provided evidence, and now you are changing my point that i was making, which is that your math is idealistic and not representative of the all transactions.

Good day.




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[mathjak107]

now that demands respect. it is rare someone who has a belief that may not be correct aplogizes for arguing the point a bit to strongly..

you sir are a man.

 

[mathjak107]

Excuse me? I said i had a feeling their was opportunity for price manipulation and the market doesn't follow a pure math price setting algorithm. You chose to challenge me by posting a bunch of rules. I said cleary and succinctly the market sets the price, you challenged it again. I provided evidence, and now you are changing my point that i was making, which is that your math is idealistic and not representative of the all transactions.

Good day.




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chill out. the only question being addressed is whether there is an inherent advantage to reinvesting dividends .

the mechanics of it has nothing to do with market action ,spreads or manipulations. the answer is no there is nothing inherent that will be an advantage or disadvantage. you may buy in higher, the same or lower if reinvesting but it is all based on market action and not anything inherent, .

 

[dallas27]

I said GOOD DAY, sir!




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[haha]

Play it again, Sam!

 

[RunningBum]

I would like to publicly apologize to RunningBum. Even though I am not happy with some things that he wrote, what I wrote in retaliation was uncalled for.

Likewise I could've handled my post better, or just not post at all. Sorry.

 

[grasshopper]

I would never argue math with a guy named Mathjax.

 

[eta2020]

To those of you who are arguing with mathjack, please do us the favor of backing up your claims with math. Math doesn't lie, although FAs and mutual fund advisors have been known to. If you are right, it should be easy to prove.

That math us useless.

It is nice to own dividend growers because that is how you make money

 

[Mulligan]

That math us useless.

It is nice to own dividend growers because that is how you make money

I have enjoyed the thread and I still like dividends. Why? Just because I do I guess. This thread closely resembles a pay off your mortgage early or not thread.


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[pb4uski]

I sense a lot of angels dancing on the head of a pin. I just don't know how many there are though. Perhaps one of you math whizzes can help. It is hard for me to count them when they are dancing around so quickly.

 

[target2019]

I like my qualified dividends served with ice cream and kahlua...