Jump in Vanguard Total Stock Market Dividend

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Jump in Vanguard Total Stock Market Dividend

Postby natureexplorer » Thu Dec 20, 2012 10:39 am

Wow, I just looked at the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 4th quarter dividend distribution and it increased from $0.175 in Q4, 2011, to $0.265 in Q4, 2012. That's an increase of over 50%.

The previous quarters didn't see such a massive increase. Any reason why that is? I am wondering whether companies tried to lump in their Q1 2013 to ease the potential tax pain.

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

PS: As a rational & taxable investor, I don't like dividends. At the same time, the irrational investor in me likes these dividends. :confused
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Unexplained dividend.

Postby Taylor Larimore » Thu Dec 20, 2012 11:00 am

natureexplorer wrote:Wow, I just looked at the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 4th quarter dividend distribution and it increased from $0.175 in Q4, 2011, to $0.265 in Q4, 2012. That's an increase of over 50%.

The previous quarters didn't see such a massive increase. Any reason why that is? I am wondering whether companies tried to lump in their Q1 2013 to ease the potential tax pain.

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

PS: As a rational & taxable investor, I don't like dividends. At the same time, the irrational investor in me likes these dividends. :confused


Natureexplore:

On December 7, Vanguard reported a 4th Quarter Estimated Dividend of $0.16%. I agree with you that the "$0.265" dividend is strange.

https://personal.vanguard.com/us/insigh ... s-12072012

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Re: Jump in Vanguard Total Stock Market Dividend

Postby Sidney » Thu Dec 20, 2012 11:01 am

Some companies have done special dividends, others have pulled in multiple quarters, and yes, some have moved Q12013 to Q42012. Hard to know what dividends will look like next year. I will probably assume (for tax purposes) a fall back to something between 2011 and the 2012 run rate before the Q4 cash storm.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby jebmke » Thu Dec 20, 2012 11:04 am

Taylor Larimore wrote:
natureexplorer wrote:Wow, I just looked at the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 4th quarter dividend distribution and it increased from $0.175 in Q4, 2011, to $0.265 in Q4, 2012. That's an increase of over 50%.

The previous quarters didn't see such a massive increase. Any reason why that is? I am wondering whether companies tried to lump in their Q1 2013 to ease the potential tax pain.

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

PS: As a rational & taxable investor, I don't like dividends. At the same time, the irrational investor in me likes these dividends. :confused


Natureexplore:

I agree with you that the "$0.265" dividend is strange. On December 7, Vanguard reported a 4th Quarter Estimated Dividend of $0.16%.

https://personal.vanguard.com/us/insigh ... s-12072012

Best wishes for a Happy Holiday!
Taylor

Taylor, if you read their statement on the estimates they acknowledge that it is based on income earned through November 30 and does not include income earned in December. I was a little puzzled by the "estimate" until I read the fine print. I must admit, the declared dividend for TSM exceeded my own assumption of +18% vs. same period last year.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby garlandwhizzer » Thu Dec 20, 2012 1:04 pm

Some companies have declared a "special dividend" recently because:
1) This year dividends are taxed at the long term capital gains rate.
2) Unless congress takes action the Bush tax cuts expire on 12/31/12, meaning that dividends will once again be taxed at the higher tax rates of ordinary income. It is not known what congress will do but some change in dividend treatment is likely.
3) Therefore taking excess corporate cash which is earning nothing for corporations at current MM rates and using some of that excess cash to pay dividends to shareholders now when preferential tax treatment is assured has the potential to get more after tax dollars into shareholder pockets. It actually demonstrates that some corporations are making decisions aligned with the perceived best interests of shareholders which is a good thing.

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Re: Jump in Vanguard Total Stock Market Dividend

Postby Raybo » Thu Dec 20, 2012 1:37 pm

garlandwhizzer wrote:It actually demonstrates that some corporations are making decisions aligned with the perceived best interests of shareholders which is a good thing.

Garland Whizzer


More likely, it shows that the people who run these corporations and own the most shares are thinking of their own pockets. It is unlikely that corporate big wigs have "all of a sudden" changed their perception of stockholder's interests!
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Re: Jump in Vanguard Total Stock Market Dividend

Postby Majormajor78 » Thu Dec 20, 2012 4:29 pm

Raybo wrote:
garlandwhizzer wrote:It actually demonstrates that some corporations are making decisions aligned with the perceived best interests of shareholders which is a good thing.

Garland Whizzer


More likely, it shows that the people who run these corporations and own the most shares are thinking of their own pockets. It is unlikely that corporate big wigs have "all of a sudden" changed their perception of stockholder's interests!

+1

In a segment that suspiciously appeared to be jouranlism, CNBC explored this question and found that many of the companies issueing special dividends have a very high percentage of stock owned by insiders.

"all shareholders benefit from dividends, many of the ceos and owners reduced themselves from these dividend votes but the companies tend to have higher insider ownership. the average inside ownership for these dividend payers is around 27% that's much higher the overall average of 7%"

See the video and transcript are at this link: http://video.cnbc.com/gallery/?play=1&video=3000133220
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Re: Jump in Vanguard Total Stock Market Dividend

Postby Wagnerjb » Thu Dec 20, 2012 5:14 pm

Majormajor78 wrote:In a segment that suspiciously appeared to be jouranlism, CNBC explored this question and found that many of the companies issueing special dividends have a very high percentage of stock owned by insiders.


Sure, but the vast majority of what is happening is that firms are shifting dividends that are traditionally paid in January to late December...specifically to achieve a lower tax rate on that one dividend. They are not changing their dividend payout or any other strategies. They are doing so specifically with shareholders (all of them) in mind.

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Re: Jump in Vanguard Total Stock Market Dividend

Postby bdpb » Thu Dec 20, 2012 8:48 pm

Wagnerjb wrote:
Majormajor78 wrote:In a segment that suspiciously appeared to be jouranlism, CNBC explored this question and found that many of the companies issueing special dividends have a very high percentage of stock owned by insiders.


Sure, but the vast majority of what is happening is that firms are shifting dividends that are traditionally paid in January to late December...specifically to achieve a lower tax rate on that one dividend. They are not changing their dividend payout or any other strategies. They are doing so specifically with shareholders (all of them) in mind.

Best wishes.


I am a corporate shareholder in my IRA account. My dividend tax rate does not change next year.

I'm sure there is some cost involved in changing the dividend from next year to this year. They were certainly not thinking about all the shareholders when they did this. Profits will be down because of this cost and I have to pay for it. Just stupid.

Why don't they really save us some taxes and not declare dividends at all? Maybe they could dump a few accountants along the way. Even more profits for me.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby sommerfeld » Thu Dec 20, 2012 11:40 pm

Sidney wrote:Some companies have done special dividends, others have pulled in multiple quarters, and yes, some have moved Q12013 to Q42012. Hard to know what dividends will look like next year. I will probably assume (for tax purposes) a fall back to something between 2011 and the 2012 run rate before the Q4 cash storm.


Costco is a particularly extreme example; they paid a one-time dividend of $7/share on 12/18 (normal dividend is $0.275/quarter).

See (among many) http://money.cnn.com/2012/11/28/investi ... index.html
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Re: Jump in Vanguard Total Stock Market Dividend

Postby natureexplorer » Thu Dec 20, 2012 11:49 pm

sommerfeld wrote:Costco is a particularly extreme example; they paid a one-time dividend of $7/share on 12/18 (normal dividend is $0.275/quarter).

See (among many) http://money.cnn.com/2012/11/28/investi ... index.html
Wow!

Why don't these companies just buy back their own shares. That would be the most tax-efficient.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby NYBoglehead » Fri Dec 21, 2012 8:41 am

I personally am happy to receive an increase in dividends as they are a crucial component of long-term compounded growth.

As to the comments regarding corporate insiders deciding to issue these dividends because they'll be the largest beneficiaries I really don't have a problem with that. Cash on the balance is sheet is earning absolutely nothing right now and any money not spent growing the business in some fashion is experiencing gradual inflation erosion. Are some of these guys greedy? Yes, congratulations on becoming an adult and accepting reality.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby richard » Fri Dec 21, 2012 8:49 am

bdpb wrote:I'm sure there is some cost involved in changing the dividend from next year to this year. They were certainly not thinking about all the shareholders when they did this. Profits will be down because of this cost and I have to pay for it. Just stupid.

Why don't they really save us some taxes and not declare dividends at all? Maybe they could dump a few accountants along the way. Even more profits for me.

There is no meaningful cost in changing the dividend date.

If they don't have any high returning uses for the money (building factories, developing products, etc.), then they're likely keeping the money in cash or some such. You should be able to earn more on the money than that.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby richard » Fri Dec 21, 2012 8:53 am

NYBoglehead wrote:I personally am happy to receive an increase in dividends as they are a crucial component of long-term compounded growth.

Where are Modigliani and Miller now that we need them?

Less cryptically, they said that dividend policy did not matter (based on a few assumptions). http://papers.ssrn.com/sol3/papers.cfm? ... _id=295974 Some people disagree. http://en.wikipedia.org/wiki/Modigliani ... er_theorem
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Re: Jump in Vanguard Total Stock Market Dividend

Postby Wagnerjb » Fri Dec 21, 2012 10:06 am

bdpb wrote:Why don't they really save us some taxes and not declare dividends at all? Maybe they could dump a few accountants along the way. Even more profits for me.


There are an awful lot of companies that don't declare dividends at all. You are free to buy shares in those companies if you feel it is more tax efficient for you....or if you feel that it a sign of a better-run company.

Personally, I own a portfolio of individual stocks (for US Large Cap only), and I go out of my way to find stocks that don't pay dividends. (Of course, I also have to balance that desire with the need for diversification).

Best wishes.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby DouglasDoug » Fri Dec 21, 2012 10:18 am

Are you suggesting we should peek at our accounts ?
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Re: Jump in Vanguard Total Stock Market Dividend

Postby NYBoglehead » Fri Dec 21, 2012 10:39 am

For those that don't like dividends, enjoy the (lack of) total return that Yahoo has provided over the years. If they paid quarterly dividends along the way you gradually would have accumulated more shares and the value of your holdings would be significantly higher than they are today.

Look at any article about the re-investment of dividends. Over time the re-investment (additional purchases of shares) has a profound impact on the total return of your investment. I can see the desire to steer clear of heavy dividends in taxable accounts, but for IRAs and 401ks you should enjoy watching the number of shares you own gradually increase with each passing quarter/year/whatever.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby letsgobobby » Fri Dec 21, 2012 11:28 am

NYBoglehead wrote:For those that don't like dividends, enjoy the (lack of) total return that Yahoo has provided over the years. If they paid quarterly dividends along the way you gradually would have accumulated more shares and the value of your holdings would be significantly higher than they are today.

Look at any article about the re-investment of dividends. Over time the re-investment (additional purchases of shares) has a profound impact on the total return of your investment. I can see the desire to steer clear of heavy dividends in taxable accounts, but for IRAs and 401ks you should enjoy watching the number of shares you own gradually increase with each passing quarter/year/whatever.

Dividend focused investing doesn't on average return more than TSM, or so I've read. While it is true that dividends have historically made up 30-40% of returns, you should not conclude that stocks without dividends necessarily will return less. Consider BRKA as the example of a non dividend paying stock which nonetheless is both "valuey" and a good overall performer.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby sscritic » Fri Dec 21, 2012 11:33 am

NYBoglehead wrote:Look at any article about the re-investment of dividends. Over time the re-investment (additional purchases of shares) has a profound impact on the total return of your investment.

I believe most such articles are comparing reinvesting dividends to going to Starbucks and spending your dividends. There may be some that compare investing in companies that declare dividends to those that don't, but are you sure those are the articles you were reading?
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Re: Jump in Vanguard Total Stock Market Dividend

Postby Slow016 » Fri Dec 21, 2012 11:39 am

Crazy thing about Costco special dividend is that they borrowed money to pay it, which caused a reduction (albeit slight) reduction on their credit rating.

http://finance.fortune.cnn.com/2012/12/ ... -dividend/
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Re: Jump in Vanguard Total Stock Market Dividend

Postby NYBoglehead » Fri Dec 21, 2012 11:48 am

sscritic wrote:
NYBoglehead wrote:Look at any article about the re-investment of dividends. Over time the re-investment (additional purchases of shares) has a profound impact on the total return of your investment.

I believe most such articles are comparing reinvesting dividends to going to Starbucks and spending your dividends. There may be some that compare investing in companies that declare dividends to those that don't, but are you sure those are the articles you were reading?



sscritic and letsgobobby,

I am not advocating going for a dividend-focused approach at all. I am 3 fund portfolio + REITs type. All I was saying is that I adamantly disagree with those who suggest AVOIDING dividends.

The articles I was referring to show the dynamic of re-investing the dividends instead of just receiving them in cash to show how the returns are enhanced through the re-investment of dividends. Again, I was not trying to suggest that companies that do not pay dividends are not worth investing in, all I was saying is that actively seeking to avoid dividends is not a sound strategy (in my opinion).
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Re: Jump in Vanguard Total Stock Market Dividend

Postby natureexplorer » Fri Dec 21, 2012 12:29 pm

Slow016 wrote:Crazy thing about Costco special dividend is that they borrowed money to pay it, which caused a reduction (albeit slight) reduction on their credit rating.

http://finance.fortune.cnn.com/2012/12/ ... -dividend/

Yeah this sounds like a strange move to me. Saving taxes was more important than corporate strategy.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby letsgobobby » Fri Dec 21, 2012 12:40 pm

Borrowing money at the lowest rates in history? Yeah, sounds like a really dumb strategy.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby bdpb » Fri Dec 21, 2012 2:49 pm

letsgobobby wrote:Borrowing money at the lowest rates in history? Yeah, sounds like a really dumb strategy.


Unless history in 20 years from now shows that interest rates didn't change over those 20 years.

Why aren't they borrowing money at these low rates to increase profits instead?
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Re: Jump in Vanguard Total Stock Market Dividend

Postby NYBoglehead » Fri Dec 21, 2012 3:14 pm

bdpb wrote:
letsgobobby wrote:Borrowing money at the lowest rates in history? Yeah, sounds like a really dumb strategy.


Unless history in 20 years from now shows that interest rates didn't change over those 20 years.

Why aren't they borrowing money at these low rates to increase profits instead?


I know everyone always brings up Japan when people say this, but do you really think the markets will permit these low rates for the next 2 decades? Maybe Japan lucked out in being first but not everything can be repeated.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby stevewolfe » Fri Dec 21, 2012 5:38 pm

letsgobobby wrote:Borrowing money at the lowest rates in history? Yeah, sounds like a really dumb strategy.


I must be dumb then as I paid off my mortgage borrowed at "one of the lowest rates in history". Ignorance is bliss.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby letsgobobby » Sat Dec 22, 2012 12:58 pm

I wouldn't say dumb, I would say your decision has a lower expected rate of return. Only you can decide if the risk is worthwhile to you.

In the case of Costco, they borrowed $3 billion to pay $3.5 billion in a special dividend, all in intermediate notes at a rate of 1.7% and less. Assuming an average loan length of five years and an average rate of 1.5%, they will have paid $225 million or so in financing costs. The $3.5 billion dividend will be taxed at 15% this year vs let's say 40% in the future (could be higher or lower). That is a 25% tax savings rate or a total savings of $875 million. That is a 300% return on their shareholders' investment over just a five year period. It seems they made an *outstanding* financial decision for their owners, and that all of us who own shares (anyone who owns an index fund) should be grateful for the decision.

If they had better options to deploy the borrowed money, I trust their management would have done it.

This is a stark example of how debt can be leveragd profitably and often at surprisingly little risk.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby bdpb » Sat Dec 22, 2012 1:33 pm

letsgobobby wrote:In the case of Costco, they borrowed $3 billion to pay $3.5 billion in a special dividend, all in intermediate notes at a rate of 1.7% and less. Assuming an average loan length of five years and an average rate of 1.5%, they will have paid $225 million or so in financing costs. The $3.5 billion dividend will be taxed at 15% this year vs let's say 40% in the future (could be higher or lower). That is a 25% tax savings rate or a total savings of $875 million. That is a 300% return on their shareholders' investment over just a five year period. It seems they made an *outstanding* financial decision for their owners, and that all of us who own shares (anyone who owns an index fund) should be grateful for the decision.


[personal remarks removed by admin alex]
The dividend that comes to me is tax FREE. That's ZERO tax cost savings.

How can the executives at Costco possibly know how much a tax increase will cost ALL their shareholders? Let me answer for you, they can't!
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Re: Jump in Vanguard Total Stock Market Dividend

Postby letsgobobby » Sat Dec 22, 2012 2:18 pm

I'm sure they know what percent is owned by executives and insiders, and I'm sure they have the ability to make some good estimates for all shareholders about stock location in general.

Assuming they couldn't think of anything better to do with the money, they could either disburse it or not. Disbursed as dividends now rather than later is a net gain for taxable money, and net neutral for tax deferred money. Therefore the net result is positive no matter what, it is a question of how positive it was. That depends on what percent of stocks is held in taxable vs retirement accounts.

According to the Investment Company Institute, in 2005 52% of all individually owned stock fund assets were NOT in retirement plans; and 2/3 of mutual fund assets in total were NOT held in retirement accounts. If we extrapolate this to Costco stock, the net gain from this decision is still 100% on the borrowed money over five years. Still an outstanding return.

http://www.ici.org/faqs/faq/FAQS_MF_STOCK_FUNDS
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Re: Jump in Vanguard Total Stock Market Dividend

Postby bdpb » Sat Dec 22, 2012 2:26 pm

letsgobobby wrote:I'm sure they know what percent is owned by executives and insiders, and I'm sure they have the ability to make some good estimates for all shareholders about stock location in general.

Assuming they couldn't think of anything better to do with the money, they could either disburse it or not. Disbursed as dividends now rather than later is a net gain for taxable money, and net neutral for tax deferred money. Therefore the net result is positive no matter what, it is a question of how positive it was. That depends on what percent of stocks is held in taxable vs retirement accounts.

According to the Investment Company Institute, in 2005 52% of all individually owned stock fund assets were NOT in retirement plans; and 2/3 of mutual fund assets in total were NOT held in retirement accounts. If we extrapolate this to Costco stock, the net gain from this decision is still 100% on the borrowed money over five years. Still an outstanding return.

http://www.ici.org/faqs/faq/FAQS_MF_STOCK_FUNDS


So, you think corporations should be run for the benefit of SOME of it's shareholders? Or ALL of it's shareholders?
They are spending my money for the benefit of other shareholders.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby letsgobobby » Sat Dec 22, 2012 2:40 pm

The total good wrought for all shareholders was positive. That should be any corporation's goal. As a shareholder you can vote against various corporate decisions that don't interest you, but if you are in the minority then you won't win. In this case you are most likely in the minority. This probably wasn't the only time your own personal situation wasn't considered by Costco, and I doubt it will be the last. I'm on the other side of your coin, with almost all of my stocks in taxable accounts. It turns out I am probably in the majority and therefore, I win in this situation. You could flip over to my team by holding more stocks in taxable. :D
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Re: Jump in Vanguard Total Stock Market Dividend

Postby Jack » Sat Dec 22, 2012 11:47 pm

In the case of Costco, the interest paid for the debt used for the special dividend is just a dead loss to non-taxable shareholders. Effectively there is a direct transfer of wealth from non-taxable to taxable shareholders.

It just so happens! that those beneficiary shareholders include management. For example, Costco founder Jim Sinegal owns nearly one million shares and will receive a dividend of $7,000,000 with an approximate tax savings of $1,750,000, courtesy of non-taxable shareholders. This is the kind of self-serving looting we've come to expect from corporate management.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby letsgobobby » Sun Dec 23, 2012 12:31 am

Jack wrote:In the case of Costco, the interest paid for the debt used for the special dividend is just a dead loss to non-taxable shareholders. Effectively there is a direct transfer of wealth from non-taxable to taxable shareholders.


No to the second comment; probably 2/3 of the wealth transfer will be from taxpayers, not taxable stockholders.
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Re: Jump in Vanguard Total Stock Market Dividend

Postby Jack » Sun Dec 23, 2012 1:52 am

letsgobobby wrote:
Jack wrote:In the case of Costco, the interest paid for the debt used for the special dividend is just a dead loss to non-taxable shareholders. Effectively there is a direct transfer of wealth from non-taxable to taxable shareholders.


No to the second comment; probably 2/3 of the wealth transfer will be from taxpayers, not taxable stockholders.

So are you denying that there is a transfer of wealth from non-taxable shareholders to taxable shareholders or are you saying that the new standard is that a little bit of self-dealing by management is okay as long as you get your share on the side?
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Locked

Postby Alex Frakt » Sun Dec 23, 2012 9:43 am

This has gone completely OT.
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