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Old 04-05-2021, 01:16 PM   #61
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Originally Posted by RetireBy90 View Post
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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Originally Posted by aleabo View Post
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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