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Old 04-05-2021, 01:16 PM   #61
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I would have to agree with the scenarios you crafted but not sure they are a valid or likely case. In a taxable account, you have dividends that are in theory offset by a decline in share price so a $1 dividend each quarter would cause the share to drop $1. In theory. Now that $10 you paid for the stock, would be $9 and you have $1 in cash, but you now have a tax liability for the dividend so you paid tax on $10 when you earned it and now pay again on part of it. Next quarter same thing. In this example every 2 1/2 years or 10 quarters you pay tax on your $10 all over again.

Hrmmmm
Sorry I didn't get. Why do I have to pay tax on $10? In your example $10 pay $1 dividends each quarter and price drops accordantly. Assuming price not changing by end of the year I have stock that cost $6 and $4 in cash. Tax paid on $4 dividends. I don't see how $10 come to picture again.
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Old 04-05-2021, 01:25 PM   #62
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Sorry I didn't get. Why do I have to pay tax on $10? In your example $10 pay $1 dividends each quarter and price drops accordantly. Assuming price not changing by end of the year I have stock that cost $6 and $4 in cash. Tax paid on $4 dividends. I don't see how $10 come to picture again.


In my example, after 10 quarters you would have received $10 in dividends. We could use your example, after a year you have 1 share and $4 but the $4 is taxable.
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Old 04-05-2021, 02:24 PM   #63
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I think they serve a purpose, especially for those who already have a huge amount of money to begin with. Often, dividend paying stocks are the larger established companies that don't have a lot of price appreciation.
Very good point(s)
Johnson & Johnson is a perfect example of what you pointed out in the 2nd sentence. I bought my 1st 100 shares in 2002 @ $48

It's now trading around $160 & there hasn't been any stock splits.
So capital appreciation wise, it hasn't done that well. I look at it as an annuity that pays me a little over $600 every 3 months.

I also understand why capital appreciation is more important than dividends for you at this point.
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Old 04-05-2021, 03:25 PM   #64
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... I also understand why capital appreciation is more important than dividends for you at this point.
Neither one is more important than the other. They are both money, and money is fungible (caveat for any differences in taxation, which generally favors capital appreciation in a taxable account).

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Old 04-05-2021, 10:32 PM   #65
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Sorry I didn't get. Why do I have to pay tax on $10? In your example $10 pay $1 dividends each quarter and price drops accordantly. Assuming price not changing by end of the year I have stock that cost $6 and $4 in cash. Tax paid on $4 dividends. I don't see how $10 come to picture again.
$10 would still be your per share cost basis, so if the share price had declined to $6 on the day you sold, you would have a $4 loss. Where this loss would offset other gains in your portfolio to reduce your tax burden. In this simplified example your net gain (income) would be $0 since the $4 loss offset the $4 in dividend income, so you would owe no taxes.

When dealing with funds, keep in mind that not all payouts are qualified dividends. Some might be classified as non-qualified and get taxed at your marginal rate. Some might be classified as ROC (return of capital) which would not be taxed but would reduce your cost basis. Using your example above if that was a $1 ROC each quarter instead of a qualified dividend, it would be considered "your original investment" so it would add $0 to your total income. Likewise when you sold, the tax basis of your share would have dropped to $6 so again there would be $0 gain/loss. You would have effectively accomplished nothing but buying a share and getting your original investment back.
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Old 04-07-2021, 06:18 PM   #66
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I've only owned a few actual single stocks in my life. My largest single-stock holding often increases its dividend which I look at as recognition of success - especially since the company continues to do very well. Probably the only reason I have the stock is that it was a stock-option by Megacorp and I knew how successful Megacorp had been for the 30+ years I was there. (Dance with the one who brung you.)

Based on my basis, the stock is yielding maybe as much as 20%. Of course, since the stock has risen dramatically in price over the years, the official dividend yield is perhaps a tenth of that now (around 2% +/- 1%). I don't think too much in terms of dividends or not since most of my stock is in funds. Still, it's nice to watch Megacrop still (going) crazy, after all these years - apologies to Paul Simon. YMMV
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Old 04-15-2021, 07:23 AM   #67
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Yes, I know it’s not a fixed income investment, but I so tired of reading of 1% that I put part of my FI component in ATT.

The share price is relatively stable and dividend is about 7%.

I know, I know ...
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Old 04-15-2021, 10:34 AM   #68
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There are three factors to consider when looking at a dividend paying stock:
1. The dividend yield.
2. The rate of dividend growth.
3. The growth of the stock price.

No stock will excel at all three. T has a high yield (6.8%), low rate of dividend growth (2%/year) and a declining share price in recent years. Extremists will use it as an example of why dividend stocks are bad (or good). But really, T is an odd duck. It is not a "typical" DG stock. It may be included in a dividend portfolio (it is part of mine), or it may not be.
T has a pretty poor dividend coverage ratio with earnings, too. If T has a hiccup, they'll be cutting the dividend, and we all know what happens to the stock price when a dividend is cut.
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Old 04-15-2021, 10:56 AM   #69
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Dash man - agreed, but that hasn't happened ... yet ...

ATT seems to actually be on the mend :-)
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Old 04-15-2021, 11:16 AM   #70
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Late to the discussion, but for the past 15 years, we've been living quite nicely off of MF dividends. Haven't owned individual stocks for years and years.

That's until this past year-end dividends where we've seen about a 25% Covid related drop; this is coupled to about a 5% drop the year before.

One fund in particular has been disappointing in both income AND growth and stood out from the rest.

So........I've been slowly divesting from that fund, kept my MFs that are growth oriented and have been buying up some dividend aristocrat stocks (along with one that's paying me 10% to take a little risk). As such, it should get me back in line with our income expectations. With bonds sliding, I've moved a bit north of 60/40...more like 68/32 but that's ok.
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Old 04-15-2021, 05:52 PM   #71
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Late to the discussion, but for the past 15 years, we've been living quite nicely off of MF dividends. Haven't owned individual stocks for years and years.

That's until this past year-end dividends where we've seen about a 25% Covid related drop; this is coupled to about a 5% drop the year before.
That's the problem with MF dividends. They are totally unpredictable.

The stocks in my taxable account pay me a "known" dividend stream every year. Most raise every year. Cuts and freezes happen, but very rarely.

I still have some growth-oriented MF's that I've owned since the 80's and 90's. The distributions vary wildly every year. I would not want to count on them.
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Old 04-15-2021, 06:07 PM   #72
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That's the problem with MF dividends. They are totally unpredictable.

The stocks in my taxable account pay me a "known" dividend stream every year. Most raise every year. Cuts and freezes happen, but very rarely.

I still have some growth-oriented MF's that I've owned since the 80's and 90's. The distributions vary wildly every year. I would not want to count on them.
I think that's true of the growth-oriented funds. I've certainly seen those wild swings in my own growth MFs.


The dividend-oriented funds are more predictable since they are designed specifically to generate dividend income. I'm in VYM personally for that purpose
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