“Buying the Dividend”

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BoggledHead2
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“Buying the Dividend”

Post by BoggledHead2 » Fri Jun 22, 2018 11:28 am

As dividend season is upon us, just wanted some clarification regarding the dreaded “buying the dividend”.

Re: taxable accounts - How long before or after a dividend is issued is it “safe” to buy more shares of a fund?

MotoTrojan
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Re: “Buying the Dividend”

Post by MotoTrojan » Fri Jun 22, 2018 11:36 am

BoggledHead2 wrote:
Fri Jun 22, 2018 11:28 am
As dividend season is upon us, just wanted some clarification regarding the dreaded “buying the dividend”.

Re: taxable accounts - How long before or after a dividend is issued is it “safe” to buy more shares of a fund?
If you want to avoid the div, buy after the ex-div date. Doesn’t matter when it’s paid out.

I don’t pay much attention to it.

Topic Author
BoggledHead2
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Re: “Buying the Dividend”

Post by BoggledHead2 » Fri Jun 22, 2018 2:03 pm

Thanks .. basically once the dividend has posted there’s nothing to worry about?

harmoniousmonk
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Re: “Buying the Dividend”

Post by harmoniousmonk » Fri Jun 22, 2018 2:16 pm

I called Vanguard today and they said if you buy VTI today you would be fine and not get the dividend.

MotoTrojan
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Re: “Buying the Dividend”

Post by MotoTrojan » Fri Jun 22, 2018 2:25 pm

BoggledHead2 wrote:
Fri Jun 22, 2018 2:03 pm
Thanks .. basically once the dividend has posted there’s nothing to worry about?
Yup but again, it makes absolutely no difference in an IRA. Actually what do you mean by “posted”? Paid out?

livesoft
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Re: “Buying the Dividend”

Post by livesoft » Fri Jun 22, 2018 2:33 pm

BoggledHead2 wrote:
Fri Jun 22, 2018 11:28 am
As dividend season is upon us, just wanted some clarification regarding the dreaded “buying the dividend”.

Re: taxable accounts - How long before or after a dividend is issued is it “safe” to buy more shares of a fund?
If one does the math, it may be better to buy the dividend. That is, it should not be "dreaded" if one knows what the tax effect will be.
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TomatoTomahto
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Re: “Buying the Dividend”

Post by TomatoTomahto » Fri Jun 22, 2018 2:36 pm

livesoft wrote:
Fri Jun 22, 2018 2:33 pm
BoggledHead2 wrote:
Fri Jun 22, 2018 11:28 am
As dividend season is upon us, just wanted some clarification regarding the dreaded “buying the dividend”.

Re: taxable accounts - How long before or after a dividend is issued is it “safe” to buy more shares of a fund?
If one does the math, it may be better to buy the dividend. That is, it should not be "dreaded" if one knows what the tax effect will be.
Livesoft, please elaborate for the slow guy in the room (me)
Okay, I get it; I won't be political or controversial. The Earth is flat.

livesoft
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Re: “Buying the Dividend”

Post by livesoft » Fri Jun 22, 2018 2:50 pm

Some math: Suppose I had $69.84 to invest in VTSAX. If I "bought the dividend" on 6/19, then I would have bought one (1) share. Then I would have received a $0.29 dividend. The tax on 29 cents for me is zero. The tax for someone who held the share for at least another 61 days would be about 4 cents which would round off to zero on their tax return.

Big whoop.

But there's more!

It looks like today that VTSAX will close up a little bit, say up 20 cents more. By waiting a day, one would not get that 20 cents which covers the tax on the dividend by a factor of 5.

Now this isn't always the case. For instance, if the fund pays out an annual dividend of 2% in December, then it will be harder for the fund to make up tax on 2% in a day or so. But nowadays, with quarterly dividends in the 2% annualized range, that's about 0.5% per payout and a fund can move that much easily.

So is it better to miss out on possible gains or is it better to miss out on paying some taxes?

For myself, I don't pay taxes on qualified dividends although I don't want to increase my AGI either. I don't worry too much about buying the dividend -- especially if an RBD occurs in the week before the dividend is paid out. For sure, I'l be buying the dividend then.

Do your own math which requires a knowledge of your own taxes, so do your own taxes, too.
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MotoTrojan
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Re: “Buying the Dividend”

Post by MotoTrojan » Fri Jun 22, 2018 2:54 pm

The “math” also requires knowing the return of the fund in advance. Still gambling somewhat but I do agree a RBD in days/week prior could tilt the odds.

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FIREchief
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Re: “Buying the Dividend”

Post by FIREchief » Fri Jun 22, 2018 3:14 pm

livesoft wrote:
Fri Jun 22, 2018 2:50 pm
Do your own math which requires a knowledge of your own taxes, so do your own taxes, too.
That right there is Wiki-worthy advice (in many investing contexts). :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

DrCheese
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Re: “Buying the Dividend”

Post by DrCheese » Fri Jun 22, 2018 3:34 pm

It is not the worst thing to buy a dividend. You just pay the tax now rather than later. If you bought the dividend, you will have a higher basis and pay less when you sell.

livesoft
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Re: “Buying the Dividend”

Post by livesoft » Fri Jun 22, 2018 3:50 pm

DrCheese wrote:
Fri Jun 22, 2018 3:34 pm
It is not the worst thing to buy a dividend. You just pay the tax now rather than later. If you bought the dividend, you will have a higher basis and pay less when you sell.
That's another myth. My cost basis for shares purchased does not change because I bought the dividend. Nor does it change because my investments paid a dividend. The cost basis stays the same. It is true that I have more shares.

Perhaps this myth is something that mutual fund companies told delicate investors who don't like math.
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libralibra
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Re: “Buying the Dividend”

Post by libralibra » Sat Jun 23, 2018 3:17 pm

post removed
Last edited by libralibra on Sun May 26, 2019 9:49 pm, edited 1 time in total.

livesoft
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Re: “Buying the Dividend”

Post by livesoft » Sat Jun 23, 2018 3:29 pm

What are you talking about? The basis of my X shares bought before the dividend remains unchanged. The Y shares I bought after the dividend have a different basis. Perhaps you are confusing what "basis" actually means?

Here's an example: I buy 100 shares at $10 a share one week before a big dividend. My basis for those 100 shares is $1000. The investment goes ex-dividend and pays out a $5 per share dividend. My 100 shares are now valued at $500, but my basis is still $1000 which is unchanged. If I reinvest the dividend exactly at $5 a share, then I can buy another 100 shares at $5 per share. The basis of those new shares is now $500.

So I have a set of shares with a $1000 basis and a set of shares with a $500 basis. The total value of my shares is $1000, but total value is not the same as basis.
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JustinR
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Re: “Buying the Dividend”

Post by JustinR » Sat Jun 23, 2018 5:42 pm

Go to your fund page's distribution tab, such as: https://investor.vanguard.com/mutual-fu ... ions/vtsax

The "Reinvest date" column (also known as Ex-Dividend date) is what you're looking for.

If you buy on that day you won't get the dividend. If you buy before that date you will.

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Mursili
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Re: “Buying the Dividend”

Post by Mursili » Sun Jun 24, 2018 7:09 pm

JustinR wrote:
Sat Jun 23, 2018 5:42 pm
Go to your fund page's distribution tab, such as: https://investor.vanguard.com/mutual-fu ... ions/vtsax

The "Reinvest date" column (also known as Ex-Dividend date) is what you're looking for.

If you buy on that day you won't get the dividend. If you buy before that date you will.
When I look, all of the dates in the "reinvest date" are in the past. I don't know how to follow your suggestion.
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UpperNwGuy
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Re: “Buying the Dividend”

Post by UpperNwGuy » Sun Jun 24, 2018 7:18 pm

Are the dates in the very recent past? As in a few days ago? I'm thinking you are too late to take any actions affecting the current quarter.

JustinR
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Re: “Buying the Dividend”

Post by JustinR » Sun Jun 24, 2018 8:07 pm

Mursili wrote:
Sun Jun 24, 2018 7:09 pm
JustinR wrote:
Sat Jun 23, 2018 5:42 pm
Go to your fund page's distribution tab, such as: https://investor.vanguard.com/mutual-fu ... ions/vtsax

The "Reinvest date" column (also known as Ex-Dividend date) is what you're looking for.

If you buy on that day you won't get the dividend. If you buy before that date you will.
When I look, all of the dates in the "reinvest date" are in the past. I don't know how to follow your suggestion.
That's because most Vanguard distributions happened this past week, and won't happen again until September.

When September rolls around, Vanguard will announce the upcoming distributions like this: https://investornews.vanguard/upcoming- ... formation/

Then you can check your fund's page (or this page) to see what day you can buy to avoid the dividend (the reinvest/ex-dividend date).

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