2012 special dividends, impact on total market distributions

[letsgobobby]

In trying to estimate investment income this year I had been assuming a dividend rate more or less the same as last year. With increasing numbers and dollars of special dividends or accelerated dividends, at what point will there be a significant impact on distributions from total market, 500, or other funds/ETFs?

[House Blend]

I doubt anyone can answer that.

FWIW, shortly after the Q3 dividend, I did some number crunching and WAGing, and came up with a prediction of $0.21/share for the Q4 dividend for Admiral shares of TSM. (Last year's Q4 dividend was $0.175/share.)

Of course, this was all before the stampede of special dividends, so my stance is that any distribution amounts above $0.21/share this quarter should be attributed entirely to the dividend stampede.

[ramos]

This is not reply a reply but a request for help. The issue is Costco (COST).

On 11/28/2012, Costco announced that it Board of Directors had declared a special cash dividend of $7 per share, payable 12/18/2912 to shareholders of record on 12/10/2012. I bought 39 shares on 11/29/2012.

Question: Am I entitled to the $7 per share cash dividend?

I would very much appreciate an early reply.

thanks

Bob

[Rainier]

Yes, but not until the year 2912! Won't be worth much then.

Take the $7 dividend taxed at 15% then sell after it goes ex-div and take the short term cap loss at your marginal rate. Just an idea.

[Wagnerjb]

In trying to estimate investment income this year I had been assuming a dividend rate more or less the same as last year. With increasing numbers and dollars of special dividends or accelerated dividends, at what point will there be a significant impact on distributions from total market, 500, or other funds/ETFs?

Bobby: I hold around 30 individual stocks as the US Large Cap portion of my portfolio, and I track the dividend payments (in Excel) to be able to calculate my total return. (This also helps me monitor dividends to help optimize tax efficiency).

I took a look at some data for you, but this certainly isn't scientific or a large sample size. The issues I expect to see are 1) companies that normally pay a January dividend accelerating it into December, and 2) companies paying a large one-time dividend in December.

Of the companies I hold, 7 paid a dividend in January 2012. Six have announced their upcoming dividend. Three companies (Comcast, Southwest Airlines, Whole Foods) are keeping their dividend in January 2013. Three companies (Cisco, Fedex, Precision Castparts) are moving their upcoming dividend to December 2012. The final company - Danaher - is expected to announce their dividend intentions on December 15th.

Not a single company of mine has announced a special one-time dividend for December 2012.

My gut feel is that the dividend from your mutual fund in Q4 will be noticably higher than it might otherwise be, but not by a very material amount.

Best wishes.

[networthmentality]

Yes, but not until the year 2912! Won't be worth much then.

Take the $7 dividend taxed at 15% then sell after it goes ex-div and take the short term cap loss at your marginal rate. Just an idea.

If you sold after the stock goes ex-dividend, I don't think the dividend would be qualified because you would not have held the stock for the requisite 60 day period during the 121 day period beginning 60 days before the ex-dividend date. Refer to IRS Publication 17. Based on that, you would have a non-qualified dividend taxed at ordinary rates, which would not give the benefit you are suggesting.

[market timer]

You can get a sense of the broad market dividend payout from options on SPY. From put-call parity, we have the following:

Call + Bond = Put + Stock

Since option holders are not entitled to dividends, the difference between traded stock price and the stock price implied by put-call parity provides a market expectation for the dividend payout over the time period until the options expire. Interest rates are so close to zero that I'm going to ignore them in this approximation.

A technical note first: This applies for European options, which cannot be exercised early. If we want to use this equation to find implied dividends, we should look at options that are unlikely to be exercised early. Therefore, I'm going to look at January SPY options with strike prices above 145 (significantly in-the-money calls are likely to be exercised just prior to the December ex-dividend date).

The stock price implied by put-call parity, when interest is negligible, is Call value - Put value + Strike price. For all liquid SPY strikes above 145, the implied stock price is within a penny of 140.28. The closing price of SPY was 141.45. Therefore, assuming the options prices listed on Yahoo Finance were effective 4pm today (not 4:15pm when the SPY options market closes--based on the quoted prices, this assumption to be true), the market is expecting a 1.17/share fourth-quarter dividend from SPY, payable later this month. Last year this time, SPY paid a 0.77/share dividend, so this is a noticeable increase.

[Alan S.]

SPY pays a late January dividend each year that is taxable in the PY. Due to special dividends, this payout should be higher than normal and add to 2012 qualified dividends which of course is the whole point of these special dividends. Total dividends will then be less than normal in 2013.

[baw703916]

You can get a sense of the broad market dividend payout from options on SPY.

Thanks, mt. That was a very helpful post.

[letsgobobby]

You can get a sense of the broad market dividend payout from options on SPY.

Thanks, mt. That was a very helpful post.

Agree, thank you! So it sounds like a ~50% increase in dividends is expected by the market?

[House Blend]

Now that the Q4 distributions of TSM have been posted, I'm bumping this thread just to compare with earlier predictions.

The Q4 dividend for Admiral shares of TSM: $0.265/share, a distribution yield of about 0.73%.

My prediction upthread (based on guesses in October) was $0.21/share or about 0.58%. So my claim is that the dividend frenzy is responsible for an extra nickel per share, or about 15bp extra in dividends.

Of course some of the frenzy may not yet be accounted for, so the Q1 dividend in 2013 could get a bump as well.

Total distributions in 2012: $0.761/share; an increase of about 27% over the $0.599/share distributed in 2011.

[letsgobobby]

Now that the Q4 distributions of TSM have been posted, I'm bumping this thread just to compare with earlier predictions.

The Q4 dividend for Admiral shares of TSM: $0.265/share, a distribution yield of about 0.73%.

My prediction upthread (based on guesses in October) was $0.21/share or about 0.58%. So my claim is that the dividend frenzy is responsible for an extra nickel per share, or about 15bp extra in dividends.

Of course some of the frenzy may not yet be accounted for, so the Q1 dividend in 2013 could get a bump as well.

Total distributions in 2012: $0.761/share; an increase of about 27% over the $0.599/share distributed in 2011.

Where did you find the info?

[House Blend]

Where did you find the info?

https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT#tab=4

[Wagnerjb]

Now that the Q4 distributions of TSM have been posted, I'm bumping this thread just to compare with earlier predictions.

The Q4 dividend for Admiral shares of TSM: $0.265/share, a distribution yield of about 0.73%.

My prediction upthread (based on guesses in October) was $0.21/share or about 0.58%. So my claim is that the dividend frenzy is responsible for an extra nickel per share, or about 15bp extra in dividends.

Of course some of the frenzy may not yet be accounted for, so the Q1 dividend in 2013 could get a bump as well.

Total distributions in 2012: $0.761/share; an increase of about 27% over the $0.599/share distributed in 2011.

The Q4 dividend increased from $0.175 per share in 2011 to $0.265 per share in 2012. If you had a large investment of $100,000 in this fund, your dividends in Q4 would be $248 higher than last year. That increase would result in a capital gains tax (at 15%) of a whopping $37. Even if you had $1,000,000 in the fund, your income would be $2480 higher and your taxes are up by $370. Those are just not numbers that will move the needle for most people. Maybe for somebody whose income is right at the cusp of a cutoff point, but not for most.

Best wishes.

[letsgobobby]

You are right, but the real savings are next year, when depending on tax law the savings could be 44%-15% of the early dividend.

[bdpb]

You are right, but the real savings are next year, when depending on tax law the savings could be 44%-15% of the early dividend.

For one thing, it's "depending on tax law" that makes this silly for companies to be doing this. And, for most folks, the potential dividend tax law changes have no impact. If you hold stock in your IRA, then there is no tax impact.

As a shareholder, this kind of stuff is not what I want my companies to be thinking about. I want them to be spending their time on increasing profits, not how to "potentially" save "some (not all)" shareholders money on taxes.

[letsgobobby]

[url]https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT#tab=4

The last updated estimated distributions are still as of Nov 30. I would like to see how accurate those estimates turn out to be.

Edit: VTSAX (TSM admiral) had an estimated dividend of $0.16 as of 11 30 12; its actual dividend on 12 18 12 was $0.265, quite a large bump up for such a short time frame.

VSIAX (small value admiral) had an estimated dividend of $0.61 on 11 30 12; actual dividend on 12 20 12 was $0.805.