How to increase dividends by shuffling investments around?

[UpQuark]

I recently did my first taxes as a retired person (retired last year) and it appears I misunderstood how much of the dividends and gains would fit in the zero percent tax bucket.

So now I'd like to receive more dividends. I'd always read that a person should not sell investments until they were long-term, but the majority of my investments are short-term.

I'd like to sell some of the ETF investments that are paying very low dividends and buy similar (probably, maybe different sometimes) mutual funds that pay out more dividends.

I'd like to sell ONEQ (nasdaq composite index) and IVV (s&p 500), then buy FNILX (large cap index).

I DCA'd the money in for the past year so there are some purchases that have a gain and some that have a loss.

My questions are, is it really that bad to sell short-term as long as I am careful to not have much total gain? And if I select gain and loss that balance out from the ONEQ pot, will I run into any wash sale issues going from nasdaq to large cap, and would I have to be careful to not sell any other large cap type investment for the next 30 days?

[TheWizard]

Better not to have a net short term capital gains, correct. Just look at the unrealized gain/loss of each lot you're thinking of selling on your brokerage website.

The rule on wash sales refers to SUBSTANTIALLY IDENTICAL investments.
But FNILX is an S&P500 index fund, same as IVV.
So it makes little sense to make that change...

[UpQuark]

Quote:

Originally Posted by TheWizard ... But FNILX is an S&P500 index fund, same as IVV. So it makes little sense to make that change...

Thanks, I didn't know if large cap meant S&P. So I won't be able to do that unless my gain or loss is too small to worry about, I think I have small lot of 7 shares of IVV that have a less than $20 gain so maybe I will sell those and buy FNILX.

The reason I want to change even if the type is the same is because I want more dividends, and although IVV pays a lot more dividend per share, since the price is around $400 per share, I can (looks like) get triple the dividends by using the money to buy 200 of the FNILX shares (that for example paid .201 per share).

7 shares x 1.72 dividend = $12
200 shares x .201 dividend = $40

I hope I'm comparing correctly, I haven't tried to look at capital gains they might pay, surely there is some number that exists on Fidelity to easily compare income between investments, but I don't know how.

[TheWizard]

All S&P 500 index funds should be paying very similar dividends, as a percentage of money invested.
Something isn't right here...

[mrfeh]

Avoiding short-term gains aside, you shouldn't be looking for funds that pay dividends. It's advantageous to control when you reap gains; dividend distributions are really just forced sales.

[audreyh1]

Don’t worry about wash sales on gains - no wash sale, the rules only apply to taking losses on a sale. Nasdaq to S&P500 is not substantially identical so no wash sale situation there either.

If you are trying to get qualified dividend income, I recommend the dividend focused ETFs - there are many. SCHD is an high quality example with dividend yield around 2x the S&P500.

[OldShooter]

The short version on dividends is that getting a 5% dividend on a stock is no different than selling 5% of your position. Also, dividends are not a tax-efficient way for a company to deliver value to shareholders; buybacks are coming into vogue for this reason. So the effect of concentrating on dividend paying mutual funds is probably a decision to concentrate on only a segment of the market, possibly one that is older and less dynamic.

Here is a very worthwhile discussion by an academic expert: Dr. Kenneth French on Dividends: https://famafrench.dimensional.com/v...dividends.aspx I'd suggest viewing it more than once in order to understand his points.

[Dash man]

Check out the ETF SCHD. It’s a fund that concentrates on solid companies that grow their dividends every year for at least ten years. Many stocks in it are Dividend Aristocrats.
FYI, with dividend growth stocks, you still collect your dividends even when the market is down like it is now. Having to sell shares for cash while the market is down takes away earning power.

[Andre1969]

I did a bit too much shuffling back in 2014, to try and get more dividends. Got hit with a huge tax bill, that I had to pay in 2015. And, 2015 was not a good year on the stock market. I didn't have to sell any stocks, or mutual funds, to cover it, as the money came out of cash. But still, I didn't get as far ahead as I thought I would, net worth wise, in shuffling around.

Another thing to consider...often stocks that have a dividend that's too good to be true, usually are. Often it's a result of the price of the stock falling, but the company just hasn't adjusted the dividend yet.

[Dash man]

Quote:

Originally Posted by Andre1969 I did a bit too much shuffling one year, 2014 I think. Got hit with a huge tax bill, that I had to pay in 2015. And, 2015 was not a good year on the stock market. I didn't have to sell any stocks, or mutual funds, to cover it, as the money came out of cash. But still, I didn't get as far ahead as I thought I would, doing that. Another thing to consider...often stocks that have a dividend that's too good to be true, usually are. Often it's a result of the price of the stock falling, but the company just hasn't adjusted the dividend yet.

You don’t want to chase high dividends or you can get burned. But companies with a history of growing their dividends each year and a reasonable payout ratio based on the type of company, are pretty reliable picks for dividend stocks.

[MarieIG]

+ 3 for ETF SCHD.

In addition to tax issues, your high dividend payers could reduce their payments or simply ride off into the sunset. (A fund like SCHD does mitigate the risk faced by a single company.)

[Al18]

Congrats on the retirement.
Respectfully, you should perform more research on these funds before you buy them. Dividends should not be your first or second consideration. My guidance when selecting a fund:
1. How is the fund performance over the past decade. Look at all the data.
2. How does the fund compare to a benchmark ie. SP500
3. What is the expense rate. I am suspicious of Fidelity’s free funds. I own plenty of FXAIX.
4. Is there a dividend and how much. Look at the dividend rate over the past decade - did it go up and down, was it ever cut, etc

I usually buy a “small” amount and every year, decide if I want to buy more, hold or sell.

[Dash man]

Quote:

Originally Posted by Al18 Congrats on the retirement. Respectfully, you should perform more research on these funds before you buy them. Dividends should not be your first or second consideration. My guidance when selecting a fund: 1. How is the fund performance over the past decade. Look at all the data. 2. How does the fund compare to a benchmark ie. SP500 3. What is the expense rate. I am suspicious of Fidelity’s free funds. I own plenty of FXAIX. 4. Is there a dividend and how much. Look at the dividend rate over the past decade - did it go up and down, was it ever cut, etc I usually buy a “small” amount and every year, decide if I want to buy more, hold or sell.

Looking just at a dividend rate can be misleading. Rates adjust as prices go up or down. You can compare the actual dividends paid and dividend growth of individual stocks easily. For funds you need to consider much more, including the process the fund uses to select the stocks in their portfolio and when and why they make changes.

[Northforker]

Dividends and Interest pay 100% of my living expenses. SS is just icing on the cake.
Here is a list of 17 ETF's that I hold in varying amounts, I have been moving cash into CD ladders for the last 6 months due to higher interest rates than dividend ETF's and stocks pay. I also hold a dozen or so high dividend paying stocks such as AVGO. ABBV, MO, PM, O, BTI, XOM, RIO, VZ, PRU, SCCO, LYB. Do your own due diligence.

Symbol Yield Expense Ratio
KNG 4.01 .75
HDV 3.57 .08
VYMI 4.52 .22
VYM 2.98 .06
SCHD 3.39 .06
FLCA 2.12 .09
DGRO 2.34 .08
DGRW 2.15 .28
VOO 1.69 .03
XLE 3.68 .10
SPYD 5.01 .07
SPHD 4.42 .30
XLV 2.92 .10
FDL 4.51 .46
SPHY 6.50 .10
SCHP 6.82 .04
IDV 7.34 .49

Happy investing and letting corporate America pay the bills!

[UpQuark]

Quote:

Originally Posted by TheWizard All S&P 500 index funds should be paying very similar dividends, as a percentage of money invested. Something isn't right here...

You are correct, I was wrong. Upon comparing further I realized that the fund that seemed to pay a lot more dividends is only paying in December and the other one pays quarterly. I hadn't paid attention to that and now I realize I would really prefer quarterly dividends.

[mrfeh]

Quote:

Originally Posted by UpQuark You are correct, I was wrong. Upon comparing further I realized that the fund that seemed to pay a lot more dividends is only paying in December and the other one pays quarterly. I hadn't paid attention to that and now I realize I would really prefer quarterly dividends.

https://www.youtube.com/watch?v=f5j9v9dfinQ

[UpQuark]

Quote:

Originally Posted by OldShooter The short version on dividends is that getting a 5% dividend on a stock is no different than selling 5% of your position. Also, dividends are not a tax-efficient way for a company to deliver value to shareholders; ...

Last year I was trying to pick things that were more 'tax efficient' which I guess is why now I'm not getting as many dividends as I'd like.

I can understand intellectually that selling stock to get a gain gives better control over my taxes than getting a dividend does, but emotionally I don't like the idea of selling stock to spend the money. And it doesn't help that as soon as I retired the stock market dropped to add more reluctance about selling any shares and locking in a loss.

Now that I've been sitting here arguing with myself about my irrational reluctance to sell stock, I have remembered my childhood trauma when after a family meeting where we voted to sell our stock to buy a new house, I made the very unhappy discovery that I was no longer going to regularly receive mail containing a check made out to me for a nickel. That experience turned me off investing for a long time, and I guess now it has come back to haunt me and keep me from wanting to sell stock. Ha ha.

[Dash man]

Quote:

Originally Posted by UpQuark Last year I was trying to pick things that were more 'tax efficient' which I guess is why now I'm not getting as many dividends as I'd like. I can understand intellectually that selling stock to get a gain gives better control over my taxes than getting a dividend does, but emotionally I don't like the idea of selling stock to spend the money. And it doesn't help that as soon as I retired the stock market dropped to add more reluctance about selling any shares and locking in a loss. Now that I've been sitting here arguing with myself about my irrational reluctance to sell stock, I have remembered my childhood trauma when after a family meeting where we voted to sell our stock to buy a new house, I made the very unhappy discovery that I was no longer going to regularly receive mail containing a check made out to me for a nickel. That experience turned me off investing for a long time, and I guess now it has come back to haunt me and keep me from wanting to sell stock. Ha ha.

My holdings currently yield $126k in dividends that grow every year. I own a combination of 52 individual stocks and ETFs. I like the regular income and spend the dividends in my taxable accounts and reinvest them in my Roth and tIRA. One of my goals is to build a generational income producing portfolio that my kids, grandkids and beyond can draw income from without selling any shares. Typically an inheritance is blown by the second generation, so I hope they look at this as an opportunity to preserve the principal by learning to just use the income to supplement their own income.

[OldShooter]

Quote:

Originally Posted by UpQuark ... I can understand intellectually that selling stock to get a gain gives better control over my taxes than getting a dividend does, but emotionally I don't like the idea of selling stock to spend the money. ...

Yes. Dr. French recognizes this as using dividend income as a sort of budget control. I think it's important that any investor understand what French is teaching, but once understood it still may be that the investor wants to do something that is for him is more emotionally optimal. We all, every day, do things that are not financially optimal. We are much less rational than we think we are. If you are a reader I'd suggest Richard Thaler's Misbehaving and Daniel Kahneman's Thinking Fast and Slow. Lots of stuff there that is helpful for investors too.