Any safer way to exploit high stock dividends?
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Any safer way to exploit high stock dividends?
Stock dividends are getting mroe and more attractive versus the low interest rates of FI. Any way to take advantage of these higher dividends while minimizing the downside in a bear market? Is there a high dividend fund that will go down less in a bear market than the S&P?
Re: Any safer way to exploit high stock dividends?
Just for discussion purposes:DennisRoche wrote:Stock dividends are getting mroe and more attractive versus the low interest rates of FI. Any way to take advantage of these higher dividends while minimizing the downside in a bear market? Is there a high dividend fund that will go down less in a bear market than the S&P?
Vanguard High Dividend Yield Index Fund Investor Shares (VHDYX) - SEC yield 2.69%
1 Year 30.59%
3 Year –8.07%
2008 High 1/2/2008 $20.00
2009 Low 3/5/2009 $9.07
Now 2/12/2010 $14.61
Quite a ride!
Vanguard Dividend Growth Fund (VDIGX) - SEC yield 2.19%
1 Year 26.01%
3 Year –2.29%
2008 High 5/19/2008 $15.21
2009 Low 3/9/2009 $8.88
Now 2/12/2010 $12.76
Another ride!
Vanguard 500 Index Fund Investor Shares (VFINX) - SEC yield 1.77%
1 Year 33.13%
3 Year –7.27%
2008 High 1/3/2008 $133.22
2009 Low 3/9/2009 $62.65
Now 2/12/2010 $99.25
See for yourself.
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: Any safer way to exploit high stock dividends?
Dennis: you recently told us that your family income jumped to $190,000 per year. In that case, you are probably in a higher tax bracket and flirting with AMT, along with phase-outs of certain exemptions and deductions.DennisRoche wrote:Stock dividends are getting mroe and more attractive versus the low interest rates of FI. Any way to take advantage of these higher dividends while minimizing the downside in a bear market? Is there a high dividend fund that will go down less in a bear market than the S&P?
Are you looking for high dividends in a tax-protected account? If not, I would be careful with higher dividends, as you may be incurring additional tax costs with higher taxable income.
Best wishes.
Andy
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Actually, I am not sure that high dividend income will hurt you under AMT, as it is taxed at the same rate for both regular and AMT taxes. What will more likely pinch you are the phaseouts. These are mostly driven off your Adjusted Gross Income (AGI), which includes dividend income. If your AGI is above something like $180,000 you cannot contribute to a Roth IRA. At similar levels, you lose education cost deductions and credits. At similar levels, you begin to lose some of your itemized deductions. I suspect there are other phaseouts as well.DennisRoche wrote:Yes, I expect to be AMT territory. I suppose that would weigh down any benefits of higher dividend income.
Best wishes.
Andy
However, if you are in the range in which AMT exemptions phase out, qualified dividends contribute to the phaseout as well, so your marginal tax rate on qualified dividends is 22%.Wagnerjb wrote:Actually, I am not sure that high dividend income will hurt you under AMT, as it is taxed at the same rate for both regular and AMT taxes.DennisRoche wrote:Yes, I expect to be AMT territory. I suppose that would weigh down any benefits of higher dividend income.
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Thanks, didn't realize that. Makes the dividends less of a good deal.grabiner wrote:However, if you are in the range in which AMT exemptions phase out, qualified dividends contribute to the phaseout as well, so your marginal tax rate on qualified dividends is 22%.Wagnerjb wrote:Actually, I am not sure that high dividend income will hurt you under AMT, as it is taxed at the same rate for both regular and AMT taxes.DennisRoche wrote:Yes, I expect to be AMT territory. I suppose that would weigh down any benefits of higher dividend income.
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Thanks. I don't think I'll be able to contribute to a Roth. I'm hoping to be able to contribute to a traditional IRA, then convert. I'm using a 529 for the kid's education.Wagnerjb wrote:Actually, I am not sure that high dividend income will hurt you under AMT, as it is taxed at the same rate for both regular and AMT taxes. What will more likely pinch you are the phaseouts. These are mostly driven off your Adjusted Gross Income (AGI), which includes dividend income. If your AGI is above something like $180,000 you cannot contribute to a Roth IRA. At similar levels, you lose education cost deductions and credits. At similar levels, you begin to lose some of your itemized deductions. I suspect there are other phaseouts as well.DennisRoche wrote:Yes, I expect to be AMT territory. I suppose that would weigh down any benefits of higher dividend income.
Best wishes.
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- Posts: 114
- Joined: Sun Jun 17, 2007 4:39 am
Re: Any safer way to exploit high stock dividends?
Thanks very much. I'm intrigued by XLU. It's around $29 and only fell to $22 during the recent bear market. It also pays a 4.3% dividend. So if the downside is only about 25% in the short-/mid-term and you can collect a healthy dividend with more favorable tax treatment, is it an option to use XLU for fixed income until interest rates move up?jh wrote:The div payouts for these should be more reliable than the S&P 500:DennisRoche wrote:Stock dividends are getting mroe and more attractive versus the low interest rates of FI. Any way to take advantage of these higher dividends while minimizing the downside in a bear market? Is there a high dividend fund that will go down less in a bear market than the S&P?
Dividend Appreciation Index
Dividend Growth Fund
Utilities ETF XLU
Consumer Staples ETF XLP
Telecom ETF IYZ
You could also go with preferred stock ETF PFF.
EDIT: I am talking about the dividend payouts and not the share price. However, if your goal is to only withdrawal money via dividends then the share price is no longer as relevant.
Good point David. Just another reason for a taxable investor with a higher income to minimize dividends.grabiner wrote: However, if you are in the range in which AMT exemptions phase out, qualified dividends contribute to the phaseout as well, so your marginal tax rate on qualified dividends is 22%.
Best wishes.
Andy