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Take the dividend ?
Old 08-11-2008, 07:58 PM   #1
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Take the dividend ?

My spouse recently purchased 4000 shares of company stock when it hit a 20 yr low inside their 401K plan. The stock has a 53% payout ratio & a 50 yr 8% avg. annual dividend increase, 12% last 10 years. I was against this concentration of assets in a single stock but its a done deal and can be sold if needed. One of the quirks of holding company stock in a 401K is you can elect to recieve the dividend instead of reinvestment back into the 401k (You pay only ordinary income tax, no penalties, tax is not withheld, shareowner repsonsibility). The thought I had was take the dividend which is about $5000 per year and use it towards fully funding roth IRAs in diversified mutual funds for both of us or if that goal is already reached begin funding a taxable account with a tax efficient mutual fund. Id be interested in any thoughts on this. I think the risk is it would be easy to say hey lets go to Hawaii the heck with funding roths were not guaranteed any tomorrows. I realized all experts say do not hold more than 10 to 20% of assets in company stock. Have explained it all to spouse-- repsonse is who cares what the stock price is were buying a consistent cash flow. Spousal arguments would consume a separate thread. 13 years from retirement.
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Old 08-11-2008, 08:27 PM   #2
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Is that GE??

I would say leave the dividends in the 401k and let it GROW.

Fund the roths with money from somewhere else in budget.
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Old 08-11-2008, 08:41 PM   #3
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Yes, it is GE. Purchased in the $26-$28 range. Kind of nervous with that kind concentration. Have analyzed the dividend history and like it . However, dont like to play "all in" with poker either. Somewhat conflicted.
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Old 08-11-2008, 09:06 PM   #4
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Yes, it is GE. Purchased in the $26-$28 range. Kind of nervous with that kind concentration. Have analyzed the dividend history and like it . However, dont like to play "all in" with poker either. Somewhat conflicted.
What percentage of your portfolio is GE?
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Old 08-11-2008, 09:44 PM   #5
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What percentage of your portfolio is GE?

33%
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Old 08-11-2008, 09:46 PM   #6
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I got badly burned by company stock in the early 2000's.

Don't do it!

You can do just fine with vanguard index funds and equivalents.

-Raymond
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Old 08-11-2008, 09:52 PM   #7
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What percentage of your portfolio is GE?

33%
I see what you mean. GE is 8% of my portfolio. I noticed today when looking at the report for the market neutral mutual fund that Rich was asking about that GE is one of their largest shorts, at least if I read the report correctly.

I am comfortable at 8%, 33% is a wad! Even though GE is certainly a stable company and IMO well managed too with many good opportunities going forward.

Your good luck will be mine also, so good luck!~

Ha
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Old 08-11-2008, 10:38 PM   #8
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What percentage of your portfolio is GE?

33%
Well, I'm glad I asked that question.

It's a good company and a good stock, but it's too big in your portfolio. I wouldn't be running out and selling tomorrow, but I wouldn't buy any more with the dividends. With 13 years to go before retirement you have time to work on this, but if I were you I would come up with some sort of plan to reduce its presence in my portfolio before retirement.

I own GE since the early 80's. I like its dividend and have never sold a share, but it's only 6.5% of my portfolio.
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Old 08-11-2008, 10:42 PM   #9
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I own GE since the early 80's. I like its dividend and have never sold a share, but it's only 6.5% of my portfolio.
This was just prior to the great leap forward under Jack Welch when he totally transformed the culture and business mix of the company. What a great investment for many years. Good timing and stock choice!

Ha
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Old 08-12-2008, 12:29 AM   #10
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The general rule of thumb is 4% for a single company. For a variety of reasons maybe double that percentage if you work for the company (although a good case can be made that owning a big chunk of company stock is a bad idea period). I'd even put GE along with Berkshire as more of a mutual fund than company so maybe double. Which means that perhaps you could justify a 16% position, but you are twice that.

I bought GE around $30 and am I quite happy to own its reliable growing dividend, I'm going to buy more if the price gets to $25, so I wouldn't say you guys are in danger of Enron collapse (of course plenty of Enron employees though the same think.)

If the dividends are tax edat the 15% rate when you withdraw them than I very much like your plan if they are taxed at ordinary income, I'm less thrilled.
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Old 08-12-2008, 12:57 AM   #11
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This was just prior to the great leap forward under Jack Welch when he totally transformed the culture and business mix of the company. What a great investment for many years. Good timing and stock choice!
Thank you sir. To coin a phrase, "GE has been berry, berry good to me". Unlike a couple my other really long term holdings, it has never gotten to be such a big percentage of what I own that I worried about being over exposed.

The only thing I ever really worried about with my GE holdings is that it is so huge and has its fingers in so many pies, that I have never felt like I really understood the company as a whole. Not a year goes by that I don't accidentally discover that GE is the big player in some sector only to discover that it's such a small piece of the company it's just a line in the annual report.
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Old 08-12-2008, 08:47 AM   #12
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If I were going to have any one stock make up over 20% of my portfolio it would be GE.
That being said, I think 33% is to much in any one company regardless of how solid the company is.
As mentioned above, with 13 years to go you could simply not reinvest dividends and stop buying more. Over the next 13 years you could invest elsewhere so GE is not 33% of your portfolio as you reach retirement.
I also agree with Leonidas about not going out and selling it today. The stock should recover nicely and give you a chance to sell at a better price within 6-18 months (maybe sooner).
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Old 08-12-2008, 10:14 AM   #13
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I am mostly in mutual funds but have been looking to pick up a few large companies with decent dividends. I picked up a little GE this morning based on it's match to the criteria I'm looking for and not having any better ideas.

-Raymond
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Old 08-12-2008, 11:14 AM   #14
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I see what you mean. GE is 8% of my portfolio. I noticed today when looking at the report for the market neutral mutual fund that Rich was asking about that GE is one of their largest shorts, at least if I read the report correctly.
You did. Now what we dont know is when they took the position. They may have taken it in october of last year or early april of this year, have enjoyed the drop, and may be preparing to close out the short. Or they may have taken it last week in anticipation of a further drop.

Unfortunately they only tell you the holdings at the end of each quarter. Unless they've updated to monthly and I wasnt paying attention...

Concentration in a single or small number of stocks can make you rich. Diversification helps you stay that way.
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dividend
Old 08-12-2008, 03:53 PM   #15
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dividend

"If the dividends are tax edat the 15% rate when you withdraw them than I very much like your plan if they are taxed at ordinary income, I'm less thrilled."

My understanding is provided we follow a specific set of IRS rules related to Net Unrealized Appreciation after spouse reachs 59-1/2 the stock will be taxed at capital gains & not ordinary income. Thanks for all the feedback. I think at a min. we will probably take the dividend & reinvest in mutual funds to increase diversification and watch the stock price for awhile as we are over a decade away from possible retirement.
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Old 08-14-2008, 12:33 AM   #16
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What percentage of your portfolio is GE?

33%
WOW RED FLAG!
... can anyone spell ENRON? Not saying GE is anything like it, but ask the ENRON guys about what they were thinking a year or so before it imploded.
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Old 08-14-2008, 04:57 PM   #17
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If this is the only way you can fund the Roth, then it might make sense to take the dividends out (or at least the alternatives would break even). But if you're just going to put redeposit them in a taxable account I think you're better off keeping them in the 401k to allow the earnings to compound tax-deferred. Everything equal, I would prefer to incur a tax liability in the distant future instead of today.

This doesn't address the issue of concentrating your assets in one stock. GE offers some of the institutional index funds from Vanguard in their 401k and their expense ratios are extremely low (0.07%).
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Old 08-16-2008, 09:01 AM   #18
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While the chances of GE sinking is slim, we all thought the same about Enron a few years ago. Plus 33% is way too much. I agree with a few of the posters in saying I wouldn't go out and sell it right away but look into buying stocks from a few different sectors so that not so much money is dependent on just one stock.
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Old 08-23-2008, 11:36 PM   #19
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What percentage of your portfolio is GE?

33%
As others have said, 33% is (way) too high. It isn't just a matter of the stocks risk/reward ratio, it's a matter of YOUR risk/reward ratio given your spouse also has an employment risk, i.e. if GE goes down the tubes (even partially), your spouse may lose their job. One of the reasons the stock is down is that a significant portion of GE's growth and earnings have been in GE Capital. As with any "bank", their balance sheet and real earnings power are suspect.

Does GE have a (discounted) employee stock purchase plan? If so, get aggressive there by putting a decent chunk of change every pay period.

Disclaimer 1: By the way, I hope your spouse is right on GE as I have a modest investment (200 shares).
Disclaimer 2: I still own a little under 10% of my net worth (I know, too much, I've been selling slowly but...), in my megacorp employer, but in my defense this stock has all been purchased at a discount, overtime, via employee purchase plan, and I have been consistently selling it over time.
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company stock dividend
Old 08-24-2008, 05:54 PM   #20
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company stock dividend

First dividend payout since stock purchase is Oct 27th. Should be around $1200, Im inclined to let my spouse play this out for awhile. Last time jumped in the company stock was 95' sold out at the top before 911 and is been 100% out since until lately. In between these times money was in well diversifed portfolio of mutual funds large cap, smalllcap, & international all which generated a subpar performance. I think we are going to gradually liquidate this position over time to a more reasonable allocation.
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