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I love Dividend Distributions
Old 11-27-2014, 03:17 PM   #1
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I love Dividend Distributions

I have not paid too much attention in years past to my dividend distributions because they were always a small percentage of my investment.This year for the first time I can't say that.It is a big deal.I am still contributing more yearly than I will get from year end distributions but the gap is small now.It is nice because instead of $10,000 which I put in my investments with the year end distributions it's over $17,000.That is a big difference.Now I can't count on this happening every year but I sure am looking forward to the time when the dividend distributions are more than my yearly contributions.I know taxes will have to be paid for my taxable accounts,but there is no free lunch.I think this trend will accelerate my growth on investments.Any thoughts?
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Old 11-27-2014, 03:34 PM   #2
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I hate dividend distributions because they cause me to pay more taxes. Instead, if needed I would rather sell shares to get the same money because I can offset the capital gains with carryover losses. This drops my AGI and allows me to get more tax credits and do larger Roth conversions.

So if you like to pay taxes, then by all means get more dividends. I think they suck.
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Old 11-27-2014, 03:37 PM   #3
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How was the total return? Growth stocks did very well this year too.

Also, a space after each sentence makes posts much easier to read. Just a request.
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Old 11-27-2014, 03:38 PM   #4
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I hate dividend distributions because they cause me to pay more taxes. Instead, if needed I would rather sell shares to get the same money because I can offset the capital gains with carryover losses. This drops my AGI and allows me to get more tax credits and do larger Roth conversions.

So if you like to pay taxes, then by all means get more dividends. I think they suck.
Well, being a fund owner there is no choice.It is done automatically.Love it or hate it ,it's going to happen anyway.
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Old 11-27-2014, 03:42 PM   #5
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How was the total return? Growth stocks did very well this year too.

Also, a space after each sentence makes posts much easier to read. Just a request.
I know and you are 100% right.I am trying to do better on that.
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Old 11-27-2014, 03:49 PM   #6
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Capital gain distributions are worse. I know that mutual funds are required to make distributions at year-end but it makes projecting taxes a real crapshoot. I was expecting a nice refund this year (worked only half the year, significant medical/dental expenses, accelerated charitable contributions) but form what I'm seeing of capital gain distributions, both received to date and estimated by the mutual fund companies, we may owe taxes.


Yeah, I know it comes with the territory and it sure beats a pile of loss carryovers but it still sucks.


OP, you're right, though- as you accumulate a "critical mass" of investments, the investment income can be a big portion of your change in assets from year to year. Sadly, in the case of capital gains, it can go in either direction!
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Old 11-27-2014, 03:54 PM   #7
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Yes, cap gains distributions are to be avoided as well. That's a reason to try to use index funds that have a history of not paying cap gains distributions. I like to decide for myself whether and when to create a cap gain or not.
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Old 11-27-2014, 03:57 PM   #8
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What is worse is that Vanguard Oct report shows QDI for International Stock Index at 40.71 % last year it was 67%, or course things can change by the EOY. I was counting on that other 27% of zero taxes.
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Old 11-27-2014, 04:02 PM   #9
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Yes, cap gains distributions are to be avoided as well. That's a reason to try to use index funds that have a history of not paying cap gains distributions. I like to decide for myself whether and when to create a cap gain or not.
One of the reasons I love our Berkshire-Hathaway stock is that it doesn't pay dividends and generates a capital gain only when it's sold. Of course, it's gonna be a big-azz capital gain. In the beginning I'd bought it in the IRA because that's where I had the funds to buy it (this was when they had only A and B shares). I realized what a bad idea that was and as I added new money to the after-tax funds, I bought B-H in the after-tax account and sold it in the IRA.
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Old 11-27-2014, 04:14 PM   #10
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I hate dividend distributions because they cause me to pay more taxes. Instead, if needed I would rather sell shares to get the same money because I can offset the capital gains with carryover losses. This drops my AGI and allows me to get more tax credits and do larger Roth conversions.

So if you like to pay taxes, then by all means get more dividends. I think they suck.
Paying taxes does suck. But its just part of the deal. Just like death.
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Old 11-27-2014, 04:47 PM   #11
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I hate dividend distributions because they cause me to pay more taxes. Instead, if needed I would rather sell shares to get the same money because I can offset the capital gains with carryover losses. This drops my AGI and allows me to get more tax credits and do larger Roth conversions.

So if you like to pay taxes, then by all means get more dividends. I think they suck.
I don't have much experience investing in non tax deferred investments so maybe I just don't understand but why does it matter if you're paying more taxes if the final result is you have more money. Say you have $10,000 in dividend income and pay $1500 in tax(I don't know what % it is), you end up with $8500 more money with almost no work required. How is that bad? Just because you pay more in taxes? So what. I would rather pay 39.6% in taxes and have $200,000 after taxes than pay 15% in taxes and have $20,000 after taxes. The final number is the important one. I must be missing something?
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Old 11-27-2014, 04:54 PM   #12
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I don't have much experience investing in non tax deferred investments so maybe I just don't understand but why does it matter if you're paying more taxes if the final result is you have more money. Say you have $10,000 in dividend income and pay $1500 in tax(I don't know what % it is), you end up with $8500 more money with almost no work required. How is that bad? Just because you pay more in taxes? So what. I would rather pay 39.6% in taxes and have $200,000 after taxes than pay 15% in taxes and have $20,000 after taxes. The final number is the important one. I must be missing something?
Dividends don't come for free. Usually they will underperform growth stocks.
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Old 11-27-2014, 05:28 PM   #13
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I don't have much experience investing in non tax deferred investments so maybe I just don't understand but why does it matter if you're paying more taxes if the final result is you have more money. Say you have $10,000 in dividend income and pay $1500 in tax(I don't know what % it is), you end up with $8500 more money with almost no work required. How is that bad? Just because you pay more in taxes? So what. I would rather pay 39.6% in taxes and have $200,000 after taxes than pay 15% in taxes and have $20,000 after taxes. The final number is the important one. I must be missing something?
I guess you are not reading some of the other threads on zero taxes. I'd like $10,000 in income and $0 in tax. I can engineer that if I don't get dividends paid to me and if I get to choose when to realize a long-term capital gain.

So I'd rather get $331,000 in income and not pay taxes on it. That way I have $331,000 to spend instead of just $200,000.
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Old 11-27-2014, 08:33 PM   #14
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Old 11-27-2014, 08:50 PM   #15
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Dividends are simply a different way of making an income. No better, or worse than others, just different.
Although I don't get fund distributions, I agree with the OP. I love dividends
They happen automatically with no transaction fees.
They are much less volatile than the stock prices themselves.
Good dividend paying stocks tend to be very well run companies with solid management.

No, they tend not to grow as fast as some growth stocks, but they also tend to do better in downturns.

I sleep very well at night knowing my income stream is stable and growing faster than inflation (although that hasn't been tough lately).
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Old 11-27-2014, 10:41 PM   #16
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Being in the 0% federal income tax bracket for LTCG and QD, more than half of my income (all investment income) now is not taxable federally. I have some muni bond fund income also not taxable federally. Any time I get an increase in those 2 types of income, either expectedly or unexpectedly, I like it. Some of that tax-free income is taxable at the state level, though.

The only type of investment income I don't like much is when my big bond fund pays a short-term cap gain distribution which is unexectedly large. This is treated as ordinary dividend income and is fully taxable at the state and federal levels. The last time that happened was back in 2010.
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Old 11-28-2014, 06:12 AM   #17
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I don't have much experience investing in non tax deferred investments so maybe I just don't understand but why does it matter if you're paying more taxes if the final result is you have more money. Say you have $10,000 in dividend income and pay $1500 in tax(I don't know what % it is), you end up with $8500 more money with almost no work required. How is that bad? Just because you pay more in taxes? So what. I would rather pay 39.6% in taxes and have $200,000 after taxes than pay 15% in taxes and have $20,000 after taxes. The final number is the important one. I must be missing something?
The problem with dividend and capital gains payouts is that they're taxable, yet reduce the value of your asset at the same time. If you had $10,000 in dividend income, that means the value of your assets was reduced by that much. It's not as noticeable with individual stocks that usually pay quarterly, and have the reduction masked by fluctuations throughout the day. But with mutual funds, that often just have one capital gain at the end of the year, if it's a big one you'll notice.

If a mutual fund does a 20% capital gain, you'll get 20% more shares, but they're worth 20% less. If you have them reinvested, your total account value is still the same, yet you're forced to pay tax on that 20%. If you have that gain paid to you, then your fund is worth 20% less, you have the cash, and still pay tax on the 20%.

In a sense, capital gains are the mutual fund manager's way of rebalancing the assets within the fund. Locking in gains on good performers, and buying up what he/she sees as bargains. And on the plus side, if you reinvest the capital gain, it does step up your cost basis.
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Old 11-28-2014, 06:20 AM   #18
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...So if you like to pay taxes, then by all means get more dividends. I think they suck.
Come on down to the 15% tax bracket with the rest of us and you'll like dividends a lot more.... they are wonderful tax-free income.

Did I mention that they are tax-free?
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Old 11-28-2014, 07:34 AM   #19
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Dividends don't come for free. Usually they will underperform growth stocks.
Right...

That is a reason why stupid Warren Buffet always buys companies which consistently grow their dividends. And that is why he can not make any money on his investments
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Old 11-28-2014, 08:39 AM   #20
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Come on down to the 15% tax bracket with the rest of us and you'll like dividends a lot more.... they are wonderful tax-free income.

Did I mention that they are tax-free?
I've never been in this bucket due to working but hope to take advantage of it starting next year. However I think I still need to pay state taxes on it (which won't be much).

Warren Buffett has written about why he doesn't like to pay any dividends (investors can make their own) in his annual letter. Probably most of you are already aware of this but thought I would link it anyway:

http://www.berkshirehathaway.com/letters/2012ltr.pdf

(starts page 19)
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