Feelings On Bank Of America & ‘Distribution’ Question

[ownyourfuture]

Bought my first shares on December 31, 2007
I now own 1,732.434 at an average cost of $24.58
The hair on the back of my neck literally stands up, when I think how much I was down at one point.
As I type this, it's at $23.40
A horrible investment choice on my part


I'm considering selling for 2 reasons:

1- I may need some losses during the year to offset dividend income, so
I can stay under the income thresholds relating to the ACA.

2- As we all know, interest rates have been at historic lows for quite some time now. I understand the theory that banks should do better if interest rates rise substantially, I just don't believe that's going to happen. IMO, the current interest rate environment, is the new normal.
Therefore, if this bank isn’t ‘making hay’ now, when will it ?

Would love to hear your opinion.



While looking over my tax info at Fidelity, I noticed a total of $449.60 in Non-Dividend Distributions in 2016.

The total was all from one company. Consolidated Communications (CNSL)

02/01/2016 $112.40
05/02/2016 $112.40
08/01/2016 $112.40
11/01/2016 $112.40
*Detail information for Non-dividend Distributions will not be reported to the IRS*


A non-dividend distribution is a distribution that is not paid out of the earnings & profits of a corporation or a mutual fund. A Form 1099-DIV or other statement showing the non-dividend distribution should be issued to the taxpayer. On Form 1099-DIV, a non-dividend distribution will be shown in box 3 & generally is not taxable. If you do not receive such a statement, you report the distribution as an ordinary dividend.

I don't recall seeing this before.
Hoping somebody here could give a more detailed explanation, and/or explain why a company would make a distribution like this ?

Thanks

 

[ENIAC]

I know this is a late reply to your question, but here's my 2c in case you're still deciding. First off, yeah you got pretty unlucky with your timing. At least you were able to average down quite a bit after 2007. Totally understand why you'd want to sell but consider a few factors for banks right now:

1) Rates seem likely to rise (you noted this)
2) Good chances of corporate tax rate cut
3) Good chances of decreased regulation (e.g. see recent talk about Dodd-Frank etc)

Together these paint a fairly rosy picture for financials over the next 4 years. Speaking for myself, I've been trimming some (mainly warrants) but I still have most of my common. I'm hesitant to sell BAC at 16x just to go and buy the broader market at 25x.

 

[euro]

I know this is a late reply to your question, but here's my 2c in case you're still deciding. First off, yeah you got pretty unlucky with your timing. At least you were able to average down quite a bit after 2007. Totally understand why you'd want to sell but consider a few factors for banks right now:

1) Rates seem likely to rise (you noted this)
2) Good chances of corporate tax rate cut
3) Good chances of decreased regulation (e.g. see recent talk about Dodd-Frank etc)

Together these paint a fairly rosy picture for financials over the next 4 years. Speaking for myself, I've been trimming some (mainly warrants) but I still have most of my common. I'm hesitant to sell BAC at 16x just to go and buy the broader market at 25x.

I took a beating with BAC myself too, but I tend to agree - if I still owned it, I'd probably hang on at this point.

 

[samclem]

Totally understand why you'd want to sell but consider a few factors for banks right now:

1) Rates seem likely to rise (you noted this)
2) Good chances of corporate tax rate cut
3) Good chances of decreased regulation (e.g. see recent talk about Dodd-Frank etc)

But all these are widely known and (presumably) already incorporated into the price, right?

I'd sell and harvest those losses as they can apparently do you some good. And if the wild ride you've had has convinced you to diversify broadly in a low-cost manner, this is a fine time to act on that.

 

[Mr. Tightwad]

I bought 1000 shares at 13.00. I was early, but thats how it goes. I don't plan on ever selling, money grubbing banks are a business I like to keep.

 

[bingybear]

Bought my first shares on December 31, 2007
I now own 1,732.434 at an average cost of $24.58
The hair on the back of my neck literally stands up, when I think how much I was down at one point.
As I type this, it's at $23.40
A horrible investment choice on my part


I'm considering selling for 2 reasons:

1- I may need some losses during the year to offset dividend income, so
I can stay under the income thresholds relating to the ACA.


While looking over my tax info at Fidelity, I noticed a total of $449.60 in Non-Dividend Distributions in 2016.

The total was all from one company. Consolidated Communications (CNSL)

Hoping somebody here could give a more detailed explanation, and/or explain why a company would make a distribution like this ?

Thanks

first... it is hard to offset dividends with with capital losses. you can offset up to the $3000 of losses to offset income per year. Beyond that, I don't see any way to use capital losses to reduce dividends. You could offset capital gains.

I don't know much about CNSL, but often reits distribute some non-dividend income like you are seeing. In the detail pages (all the extra pages behind the 1099 composite) often contain an explanation. For me these have often been things like return of capital. These are not taxed, but reduces the basis in the stock. You or your broker will have to track the basis change for future tax returns. Reits do this return on capital because the rules they work under. They have some benefits of being a reit, but other rules make them distribute other things.

looking at CNSL -- it looks like they are spinning of windstream into a reit... so that may give a hit as to why they might be doing a distribution like a reit. I assume you know more about your investments than I do.

 

[MooreBonds]

I don't recall seeing this before.
Hoping somebody here could give a more detailed explanation, and/or explain why a company would make a distribution like this ?

Thanks

The reason a distribution is non-taxable is because of the nature of dividends from (nearly all) publicly traded companies. (the following isn't guaranteed to be 100% technically accurate, but is my understanding of the tax code and implications of the nature of dividends)

Dividends are typically double-taxed: the company pays corporate income taxes when they earn $1.00, leaving them perhaps $.70. They then may distribute, say, $.35 of that income to shareholders. That income is usually considered a "qualified dividend" (thanks to a tax change in the early 00s), because it has already been hit by corporate income taxes.

For certain corporations (typically REITs and Business Development Companies), they pay no corporate income taxes and instead pass that income down to the shareholders (who then pay the tax). However, they are required by IRS statues to distribute at least 90% of their taxable income to shareholders, so that at least 90% of the income can be taxed by the shareholders (and the gov't gets their share), so the REIT doesn't simply pile up the earnings each year and it goes untaxed. If a REIT/BDC decides to distribute more than 100% of their net taxable income, that overage isn't "income" just because you receive it - it's considered a non-taxable dividend, because the income was never subject to income taxes by the corporation.

Because REITs typically have large amounts of depreciation, their net taxable income is often relatively low (which is why you see sky-high PE ratios for many REITs, or even net losses for their annual earnings). But their distributions are often considerably larger than their annual net earnings. So often, a large part of a REIT's (or other similar companies) distribution is non-taxable because it's more than their net taxable income.

 

[ownyourfuture]

first... it is hard to offset dividends with with capital losses. you can offset up to the $3000 of losses to offset income per year. Beyond that, I don't see any way to use capital losses to reduce dividends. You could offset capital gains.

Thanks for the reply, but this subject was already covered in another thread I started.
http://www.early-retirement.org/for...d-from-dividend-income-aca-related-84204.html

I assume you know more about your investments than I do.

Maybe, maybe not.

I only know it as my hometown telephone company, which has paid a handsome dividend for as long as I can remember.
The name has changed 4 times in the last 25 or so years.

Mankato Citizens Telephone Company
Hickory Tech Corp.
Enventis Communications
Consolidated Communications

I could be wrong, but I'm almost certain they are not a REIT, & Windstream is not part of the company.

 

[ownyourfuture]

Then why did you include it in the starter of this thread?

It wasn't a 'question' bingybear
I clearly stated that it was one of the 2 'reasons' I was considering selling.

I'm considering selling for 2 reasons:

1- I may need some losses during the year to offset dividend income, so
I can stay under the income thresholds relating to the ACA.

2- As we all know, interest rates have been at historic lows for quite some time now. I understand the theory that banks should do better if interest rates rise substantially, I just don't believe that's going to happen. IMO, the current interest rate environment, is the new normal.
Therefore, if this bank isn’t ‘making hay’ now, when will it ?

 

[ownyourfuture]

Update: As I type, BOA is trading @ $24.58, my exact cost basis.
I wouldn't normally do this, but after what I've been though with this stock,
I can only say, sometimes 'even' can feel pretty damm good

 

[Bamaman]

Congratulations on your retaining your peace of mind.

The father of a close friend was one of BOA's largest individual stockholders after BOA bought a bank he owned. His dad was also on the BOA board of directors. I often wondered how he slept some nights the past 20 years. But they have a diversified bunch of family companies that support living in a 39,000 square foot house.