Any Solid 8% Dividend stocks or MFs?

[rsingh6675]

Are there any good 8% dividend stocks or Mutual Funds in your retirement portfolio?

[jimnjana]

EVEP, MO was pretty close.

[Zathras]

No, if there were I would sell them.
8% is into the realm of chasing the yield. Yes, it may pay off well, but odds are better that the company is in trouble and the dividend is in jepordy.
The only exception would be REITS or other businesses that are required by law to pay out a percentage of their profit as dividends.
However, I wouldn't call any energy or reits 'solid'. You can find them, depending upon the amount of risk you want to take.

[jimnjana]

Quote:

Originally Posted by Zathras No, if there were I would sell them. 8% is into the realm of chasing the yield. Yes, it may pay off well, but odds are better that the company is in trouble and the dividend is in jepordy. The only exception would be REITS or other businesses that are required by law to pay out a percentage of their profit as dividends. However, I wouldn't call any energy or reits 'solid'. You can find them, depending upon the amount of risk you want to take.

Disagree that energy stocks and Reits are not solid, different business models yes, different definitions of "solid" apply. Energy stocks and REITs to some extent are cyclical stocks, if you understand the cyclic nature of their businesses, they both can add diversity to your portfolio.

As you point out, some companies such as REITS are required to pay distributions. Canadian Royalty Trusts receive great tax incentives to pass on earnings to unit holders (until Canadian tax law changes) in the form of distributions. Master Limited Partnerships also tend to pay large distributions. These business models are all different, all offer investors great long term returns with substantial income opportunities in most cases.

[kumquat]

Depends. How do you define 8%.

I bought Canadian bank stocks near their March lows. At the time their yields were north of 8% and one was double digits. Today, since their stock price has recovered, they yield between 3.5 and 5.5. Are you dividing the dividend by today's price or the price we paid?

[mews]

What kumquat said- I made one buy in March, on one of those shrieking down days, and got 100 shares of an energy company pretty cheap.

Couldn't, and won't try to, match that today.

ta,
mew

[cashflo2u2]

I own a small REIT that pays about 11% at current prices, almost 20% on my cost. It is well managed by high integrity management. Yes, it is in commercial properties but has no debt coming due soon and it's properties have all 100% of tenants paying rent according to terms. Hesitate to name it as I don't want to appear to be touting it.

[rsingh6675]

No one will benefit if you don't disclose the names. On the other hand you will benefit more if everyone buys your favorite and the price goes up.

[cashflo2u2]

Good logic, rsingh. The stock I was referring to is Gladstone Commercial symbol- GOOD. I think there is a separate board for discussing individual stocks.

[REWahoo]

Quote:

Originally Posted by cashflo2u2 I think there is a separate board for discussing individual stocks.

Yes, and this thread has been moved there (Stock Picking Forum).

[TeeRar]

Quote:

Originally Posted by rsingh6675 Are there any good 8% dividend stocks or Mutual Funds in your retirement portfolio?

Buy JNJ PG PEP ADP EMR AFL WMT AFL SYY (or similar) - wait 12 years, voila, you have a good 8% dividend stock

Added bonus, DRIP and your effective yield will be more like 10%

[Fantasm]

What about Bank of America Preferred shares? They are paying 8%.
BAC-J

[jimnjana]

I think the search for some good growth opportunities along with the prospects of 8% yields would be to look at some companies that have suspended dividends. Yes, suspended dividends are a danger sign that you need to research to discover why the dividends were suspended. I like BBEP. This is an MLP that has suspended distributions. Since they have suspended distros, they are using the funds to reduce their outstandind debt. The company has stated an intention to reinstate distros and this will likely occur in late 2010 or 2011. Share price has reflected uncertainty with the Quicksilver lawsuit as welll as the lack of the distro. The lawsuit is heading to closure and Quicksilver remains one of the largest shareholders. I don't think the distro will be as high as it once was, at this point still likely to be close to a 10% yield.

jim

[clifp]

Morningstar's Dividend investor newsletter has several stocks and MLPs near 8% yield that have reasonably safe dividends. MO, NS, ETP, MMP, and KMP. The editor particularly like ETP since it has 5 star M* rating. Another editor of income newsletter also likes ETP.

[gquiring]

Quote:

Originally Posted by clifp Morningstar's Dividend investor newsletter has several stocks and MLPs near 8% yield that have reasonably safe dividends. MO, NS, ETP, MMP, and KMP. The editor particularly like ETP since it has 5 star M* rating. Another editor of income newsletter also likes ETP.

Can someone explain what the "master limited partnership" issue is with personal taxes? I bought some ETP for income but am confused on what Morningstar is implying about the tax issues.

[TeeRar]

Quote:

Originally Posted by gquiring Can someone explain what the "master limited partnership" issue is with personal taxes? I bought some ETP for income but am confused on what Morningstar is implying about the tax issues.

ETP is a master limited partnership - MLP (aka PTP-Publicly Traded Partnerships).

MLPs/PTPs do not pay corporate tax. Distributions (technically not dividends) to investors, are deemed, for tax purposes, to be tax-deferred “return of capital.” Investors are given their share of the PTP’s income and also a share of the PTP’s deductions (such as depreciation) losses, and credits. These will offset most or all of the ordinary income. If there is a net loss (remember, this is a tax accounting fiction---your PTPs pay CASH distributions) it is considered a “passive loss” and isn’t deductible from income, though it may be used in future years to offset any ordinary income from the PTP or to offset other income when you sell your units. Passive income and loss from a PTP may only be used to offset income and loss from the same PTP. Your adjusted basis in the stock is reduced by the amount of any passive loss or tax deferral.

So for a taxable account you can effectively DEFER taxes on a large portion of your PTP income -IMO, that's a good thing.

For Roth's or Traditional IRAs - it's a little more complicated - Income from an MLP/PTP may be considered unrelated business taxable income (UBTI) subject to tax. However it will not be taxed as long as the amount of this income and all other sources of UBTI does not exceed $1,000 in any one year.

So you can hold PTP/MLPs in retirement accounts as long as the UBTI PORTION of the distribution is under $1000/year - no problems.

If it's over $1000/year the retirement account might have to pay a tax on it.

I keep my MLPs in a taxable account because I fail to see the benefits of shielding one of the few legal tax deferring vehicles in a tax deferred (or tax exempt) account.

I know its long but hope it helps

[gquiring]

Quote:

Originally Posted by TeeRar ETP is a master limited partnership - MLP (aka PTP-Publicly Traded Partnerships). MLPs/PTPs do not pay corporate tax. Distributions (technically not dividends) to investors, are deemed, for tax purposes, to be tax-deferred “return of capital.” Investors are given their share of the PTP’s income and also a share of the PTP’s deductions (such as depreciation) losses, and credits. These will offset most or all of the ordinary income. If there is a net loss (remember, this is a tax accounting fiction---your PTPs pay CASH distributions) it is considered a “passive loss” and isn’t deductible from income, though it may be used in future years to offset any ordinary income from the PTP or to offset other income when you sell your units. Passive income and loss from a PTP may only be used to offset income and loss from the same PTP. Your adjusted basis in the stock is reduced by the amount of any passive loss or tax deferral. So for a taxable account you can effectively DEFER taxes on a large portion of your PTP income -IMO, that's a good thing. For Roth's or Traditional IRAs - it's a little more complicated - Income from an MLP/PTP may be considered unrelated business taxable income (UBTI) subject to tax. However it will not be taxed as long as the amount of this income and all other sources of UBTI does not exceed $1,000 in any one year. So you can hold PTP/MLPs in retirement accounts as long as the UBTI PORTION of the distribution is under $1000/year - no problems. If it's over $1000/year the retirement account might have to pay a tax on it. I keep my MLPs in a taxable account because I fail to see the benefits of shielding one of the few legal tax deferring vehicles in a tax deferred (or tax exempt) account. I know its long but hope it helps

Any chance you could sum that up for a situation where it's just an investment for non-IRA/401K investments where I am taking the monthly income? I assume the dividends are taxable like most normal stocks?

[TeeRar]

Quote:

Originally Posted by gquiring Any chance you could sum that up for a situation where it's just an investment for non-IRA/401K investments where I am taking the monthly income? I assume the dividends are taxable like most normal stocks?

Generally, your assumption is wrong (I'll resist the urge to trot out the line about you know what happens when you assume ):
First the disclaimer - I'm not a tax professional but I play one on the internet - check with someone who knows what they speak of

In non- retirement accounts
The PTP/MLP does not pay tax (This is a good thing - it can pass more of its earnings to you)
It passes its earnings in the form of distributions - they resemble dividends but (IMO) they have better tax treatment
The distributions can be return of capital or income - sometimes a combination of both but almost always the bulk of the distribution is considered return of capital.

Return of capital is NOT taxed at the time you receive it. You read that right - probably worth repeating. That distribution you receive (that looks suspiciously like a dividend)? You don't owe any taxes on it right now!!!
Instead, it's used to lower your cost basis of the unit you own, in theory, raising the amount of capital gains you will owe when you sell your units

Example
You buy 100 shares of ETP for $40/share, including commissions - your cost basis is $40/share
First year you receive $2/share in distributions (all of it return of capital), you owe $0 taxes on that distribution but your cost basis is now $38/share
After one year you sell your shares for $42/share, your capital gains tax will be based on $38/share NOT $40/share.
Upsides of MLP/PTPs
Generally a very competitive distribution - yields of 6-9% are not uncommon
Distributions are generally tax-deferred
Downsides of MLPs/PTPs
Accounting can be a bit of a PITA
No one knows what the future of taxes is but my bet is "the long term trend is up" - you're deferring taxes from NOW (when you know your exact liability) to a time when you don't know exactly what your tax liability is.

IMO, people seeking current passive income should consider them.

Hope that helps

[clifp]

Actually TeeRar your example isn't completely correct either.
The $2 distribution is actually treated as recapture of depreciation and taxed at ordinary income when you sell it.

The good news is Turbo Tax handles most of this for you automatically.
The best example I found on understanding MLP's by far is Morningstar's Dividend Investor newsletter. I like the newsletter quite a bit and include a several page supplement on MLPs. It maybe worth signing up for a 30 day free trail here just to get the MLP info.

[haha]

I own several of these, one particular one for 25 years. If you buy a solid one, and buy it right, the income return can be huge.

If you owned the one you have in 2009, you have or will soon get a K-1 partnership return. Put the figures into Turbo-Tax ( I have had best luck with TT Premier), or let an accountant do your return. The K-1 tells you where to enter the data. Most of the taxable income eventually shows up on Schedule E.

IMO these are very poor trading vehicles, and also poor asset allocation vehicles. You will want to have a well founded opinion, and plan on holding your choices for many years, unles something goes meaningfully wrong. Also, though some may differ on this point, I believe in holding a meaningful amount of each issue you buy, rather than a little this, a little that. One reason is that if you choose to or have to have an accountant do your return, it can cost an arm and a leg to have him enter all the small positions. Also I agree with the posters above, own it outside an IRA or 401-K. Why give up an already advantageous tax position?

Tax wise, everything is different with an MLP compared to a C-corp. The way you handle distributions, the way you figure basis, the treatment of gain or loss, etc.

There is an excellent MLP forum on Investor Village. As with any internet forum, some people are very well informed and very helpful, some not so much. But this IV forum is generally on target.

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