Sell stock or just get cash dividends?

[FREE866]

To meet my cash flow needs for my portfolio I withdraw from my taxable brokerage account.

My dilemma is that for a portion of that cash flow I select cash dividend payment to generate that income. I was wondering if I should just sell the amount I need so that the portion of stock I keep invested I can select "reinvest dividends" therefore improving the total return on my invested portion.

My sense is that it cancels itself out as if I sell the amount needed( as opposed to getting cash dividends) yes my total amount invested is lower, but I can select "reinvest dividends" which will over time grow more , albeit from a lower base.

[OldShooter]

Quote:

Originally Posted by FREE866 ... My sense is that it cancels itself out ...

Yes. More here in this Ken French video: https://famafrench.dimensional.com/v...dividends.aspx

[Sojourner]

I suspect that selling from your taxable brokerage accounts to meet current spending needs may end up costing slightly more, due to the fact that you're having to pay capital gains tax on those proceeds, PLUS having to pay tax on the dividends regardless of whether you spend or reinvest them.

Personally, I try to meet current spending needs as much as possible from dividends and CG distributions from my taxable accounts, since those things are automatic and the taxes on them are unavoidable. If/when the need arises, I do sell some additional MF or ETF shares from my taxable accounts. Thankfully, so far there has been little need to do that, so I've been happy to (mostly) live off divs and CG distributions.

[RunningBum]

I'm not sure exactly what you mean about improving total return and so on, but reinvesting dividends is nothing more than taking the cash and immediately buying the stock or fund again. If you don't need all of the dividends for cash, you can buy whatever you like with the excess, rather than automatically buying more of the same. It's a chance to diversify and rebalance assets. Or you could just chose to buy more of the same.

If you really want to keep investing more of the same, then it really doesn't matter much. Reinvesting dividends is quick and automatic, and you can choose to sell whenever you want or need to, rather than dealing with the dividends quarterly, so I can see an advantage to reinvesting in that case.

For me, dividends don't cover all of my cash flow needs, so I take the dividends in cash. One exception is a closed fund with a limit on how much I can add each year, so I reinvest those dividends so that I can add more to it. I sold almost all of that fund off last year though.

[FREE866]

Quote:

Originally Posted by RunningBum I'm not sure exactly what you mean about improving total return and so on, but reinvesting dividends is nothing more than taking the cash and immediately buying the stock or fund again.

I say "improving total return" because if you look at the s and p 500 return WITH dividends reinvested it is a lot more than the return WITHOUT dividends reinvested. So by choosing to NOT reinvest the dividends and select CASH dividends then the portfolio with will have a less total return given I'm not reinvesting dividends....see what I mean?

[bobandsherry]

Quote:

Originally Posted by FREE866 I say "improving total return" because if you look at the s and p 500 return WITH dividends reinvested it is a lot more than the return WITHOUT dividends reinvested. So by choosing to NOT reinvest the dividends and select CASH dividends then the portfolio with will have a less total return given I'm not reinvesting dividends....see what I mean?

S&P also doesn't take any distribution, so not really a valid comparison data point.

[RunningBum]

Quote:

Originally Posted by FREE866 I say "improving total return" because if you look at the s and p 500 return WITH dividends reinvested it is a lot more than the return WITHOUT dividends reinvested. So by choosing to NOT reinvest the dividends and select CASH dividends then the portfolio with will have a less total return given I'm not reinvesting dividends....see what I mean?

But you need cash from somewhere, right? If it's not from those dividends you are going to take it from some other investment, so the net is the same, with respect to the total return on your whole portfolio.

Try this:
Figure out how much cash you need.

Look at your portfolio now, and where you want your portfolio to be after getting dividends, and taking that cash.

Figure out the best way to get to your desired portfolio with a combination of taking dividends and selling shares. If you find yourself reinvesting dividends and selling shares of the same holding, it probably makes more sense to just take the dividends in cash, unless you have tax harvesting opportunities.

[FREE866]

Quote:

Originally Posted by bobandsherry S&P also doesn't take any distribution, so not really a valid comparison data point.

not sure what you mean...If my money is invested in SPY it would be a valid data point as having dividends reinvested enhances the total return

[FREE866]

Quote:

Originally Posted by RunningBum But you need cash from somewhere, right? If it's not from those dividends you are going to take it from some other investment, so the net is the same, with respect to the total return on your whole portfolio. Try this: Figure out how much cash you need. Look at your portfolio now, and where you want your portfolio to be after getting dividends, and taking that cash. Figure out the best way to get to your desired portfolio with a combination of taking dividends and selling shares. If you find yourself reinvesting dividends and selling shares of the same holding, it probably makes more sense to just take the dividends in cash, unless you have tax harvesting opportunities.

exactly...net net the result is the same which is what Ive been thinking , but figured I'd throw the question out there just to get others perspective
thx!

[RunningBum]

Quote:

Originally Posted by FREE866 exactly...net net the result is the same which is what Ive been thinking , but figured I'd throw the question out there just to get others perspective thx!

Yes, net result is the same, which is why I questioned how you could be talking about improving total returns.

[FREE866]

Quote:

Originally Posted by RunningBum Yes, net result is the same, which is why I questioned how you could be talking about improving total returns.

right....I didn't mean that the way it came out....I meant that in context of just the return with dividends vs without...not taking into account anything else...

[audreyh1]

Quote:

Originally Posted by FREE866 I say "improving total return" because if you look at the s and p 500 return WITH dividends reinvested it is a lot more than the return WITHOUT dividends reinvested. So by choosing to NOT reinvest the dividends and select CASH dividends then the portfolio with will have a less total return given I'm not reinvesting dividends....see what I mean?

No - dividends count as part of total return independent of withdrawals.

[FREE866]

Quote:

Originally Posted by audreyh1 No - dividends count as part of total return independent of withdrawals.

I get that hence my original question

[UnrealizedPotential]

To me it would depend on much stock you would have to sell every month to meet your income needs. If you need to sell close to the amount of the reinvestment, then why not just take the dividends as cash and forget it. If however, you only need to sell a small portion every month, then I would try to figure out a way to fund your income gap without selling anything every month, or at least have an account that is just used for your income gap, and let the other accounts reinvest.

It took me a long time to get things right as far as what to reinvest and what to take as cash. It's difficult to use an account as both income and as growth. I have separate accounts for what I want each to do. IMO a growth account wouldn't throw off the yield I would need to live off of. If someone has excess cash flow then this could work, otherwise it will be difficult.

[audreyh1]

Quote:

Originally Posted by FREE866 I get that hence my original question

Personally I don’t reinvest dividends, because doing so might cause more taxable events later when I need to sell funds for income and/or rebalance. So I simply allow distributions to accumulate in cash during the year (in a high yield savings account). These are used for next year’s income. As it happens, most of the distributions are paid out in December, and I withdraw my entire annual income in January. So it’s not like I’m losing out on any significant gain opportunity.

Also - it tends to be the higher performing funds which pay out the most in distributions, so taking them in cash does most of my rebalancing for me already, and I rarely have to do much in addition after my withdrawal in January.

Tax efficiency drive the mechanics for me.

[FREE866]

Quote:

Originally Posted by audreyh1 Personally I don’t reinvest dividends, because doing so might cause more taxable events later when I need to sell funds for income and/or rebalance. So I simply allow distributions to accumulate in cash during the year (in a high yield savings account). These are used for next year’s income. As it happens, most of the distributions are paid out in December, and I withdraw my entire annual income in January. So it’s not like I’m losing out on any significant gain opportunity. Also - it tends to be the higher performing funds which pay out the most in distributions, so taking them in cash does most of my rebalancing for me already, and I rarely have to do much in addition after my withdrawal in January. Tax efficiency drive the mechanics for me.

I hear you
I'm not in mutual funds so there is no distribution of capital gains
I'm all in major market index ETFs

[VFK57]

If you plan to live of stocks dividends then you must not sell those stocks - it will reduce your income. Sure sometimes some companies have troubles and reduce the dividends, therefore plan to have about 30-50% more income to reinvest if everything is fine.

[FREE866]

Quote:

Originally Posted by VFK57 If you plan to live of stocks dividends then you must not sell those stocks - it will reduce your income. Sure sometimes some companies have troubles and reduce the dividends, therefore plan to have about 30-50% more income to reinvest if everything is fine.

I don't now and don't plan to live off stocks dividends

[pb4uski]

+1 total return investor here... I don't care whether I get dividends or sales proceeds... money is fungible.

[Sunset]

Quote:

Originally Posted by FREE866 To meet my cash flow needs for my portfolio I withdraw from my taxable brokerage account. My dilemma is that for a portion of that cash flow I select cash dividend payment to generate that income. I was wondering if I should just sell the amount I need so that the portion of stock I keep invested I can select "reinvest dividends" therefore improving the total return on my invested portion. My sense is that it cancels itself out as if I sell the amount needed( as opposed to getting cash dividends) yes my total amount invested is lower, but I can select "reinvest dividends" which will over time grow more , albeit from a lower base.

I would simply take all the dividends if needed, and if still need more cash sell some stock.
This will mean that all remaining stock are LTCG, and all stock sold will be LTCG.

The problem with re-investing the dividends and then selling stock, is you could without careful attention, or due to the number of stocks, end up selling some of them as STCG, and pay a much higher rate of tax.