Around 43K in dividends last year - feel good about it ?

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skor99
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Around 43K in dividends last year - feel good about it ?

Post by skor99 » Thu Jan 10, 2019 7:29 pm

My portfolio threw around 43K total dividends in 2018 ( was around 36K in 2017). Around 14 k is taxable. This number does not include cap gains distribution by mutual funds.
On one hand it feels good to see this stream of income coming in , but on the other I am still down by 90K for 2018 even after including this. Should I still be happy to see a positive flow that would hopefully keep going up or atleast stay steady barring a big economic downturn? I know people advice to only look at total returns, but didn’t this income stream make my total returns less negative than what it would be otherwise ?

livesoft
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Re: Around 43K in dividends last year - feel good about it ?

Post by livesoft » Thu Jan 10, 2019 7:34 pm

You should feel terrible about the $14K in taxable dividends. How can you get that lower and thus have a lower tax bite?

This income stream did NOT make your total return less negative than it would have been otherwise. In fact it probably made it worse because the taxes had to be paid from somewhere.

Edit to add: There is a chance that you paid no taxes on the taxable dividends because your overall income was low enough and the dividends were qualified dividend income and you also will claim the foreign tax credit and did some tax-loss harvesting.
Last edited by livesoft on Thu Jan 10, 2019 7:39 pm, edited 1 time in total.
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whodidntante
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Re: Around 43K in dividends last year - feel good about it ?

Post by whodidntante » Thu Jan 10, 2019 7:35 pm

You shouldn't be happy about dividend distributions or capital gain distributions unless you enjoy paying taxes or like to see your own money moving around. What matters is total return.

staythecourse
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Re: Around 43K in dividends last year - feel good about it ?

Post by staythecourse » Thu Jan 10, 2019 7:39 pm

skor99 wrote:
Thu Jan 10, 2019 7:29 pm
My portfolio threw around 43K total dividends in 2018 ( was around 36K in 2017). Around 14 k is taxable. This number does not include cap gains distribution by mutual funds.
On one hand it feels good to see this stream of income coming in , but on the other I am still down by 90K for 2018 even after including this. Should I still be happy to see a positive flow that would hopefully keep going up or atleast stay steady barring a big economic downturn? I know people advice to only look at total returns, but didn’t this income stream make my total returns less negative than what it would be otherwise ?
Did you at least reinvest the divendeds? If so, then you bought shares that were surely lower for nearly every asset class.

Good luck.
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Leif
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Re: Around 43K in dividends last year - feel good about it ?

Post by Leif » Thu Jan 10, 2019 7:44 pm

I would rather have dividend income, most of which is qualified at 15%, then interest income which is at a higher marginal rate.

2018 was a down year for equities. It happens. But as my CDs come to term I'm buying equities with the portion that I will not be needing for retirement spending.

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skor99
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Re: Around 43K in dividends last year - feel good about it ?

Post by skor99 » Thu Jan 10, 2019 8:18 pm

staythecourse wrote:
Thu Jan 10, 2019 7:39 pm
skor99 wrote:
Thu Jan 10, 2019 7:29 pm
My portfolio threw around 43K total dividends in 2018 ( was around 36K in 2017). Around 14 k is taxable. This number does not include cap gains distribution by mutual funds.
On one hand it feels good to see this stream of income coming in , but on the other I am still down by 90K for 2018 even after including this. Should I still be happy to see a positive flow that would hopefully keep going up or atleast stay steady barring a big economic downturn? I know people advice to only look at total returns, but didn’t this income stream make my total returns less negative than what it would be otherwise ?
Did you at least reinvest the divendeds? If so, then you bought shares that were surely lower for nearly every asset class.

Good luck.
Yes, dividends from MFs are always reinvested the same day . Dividends from ETFs are periodically reinvested on market down days.

Is there some corresponding ETF for total growth stocks which can be compared to dividend paying ETFs VIG or VYM ? That would be a good test

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Re: Around 43K in dividends last year - feel good about it ?

Post by retiringwhen » Thu Jan 10, 2019 9:33 pm

skor99 wrote:
Thu Jan 10, 2019 8:18 pm
Is there some corresponding ETF for total growth stocks which can be compared to dividend paying ETFs VIG or VYM ? That would be a good test
For large-cap US Stocks, there is a split MF pair (and associated ETFs) that split value and growth in a crude way. Together they equal the Large-Cap Index Fund (VCLAX). They are VIGAX for Growth and VVIAX for Value.

When I tax-loss harvested last time in DEC, I put most of my US value large-cap in my IRA and the equal amount of Growth in the taxable account. This shifted dividends by about 20% into the IRA from the taxable account. It is early to see if it works in the long run, but it is one approach. BTW, I stays market neutral by doing this, I am still holding the equivalent of VTSAX in 3 funds now (VVIAX, VIGAX and VSMAX for Small Caps). BTW, you can also split VSMAX the same way with two funds as well, but I chose not to do that as the market weight of those funds was much smaller and I wanted to stay simple.


Van
Last edited by retiringwhen on Fri Jan 11, 2019 5:57 am, edited 1 time in total.

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Re: Around 43K in dividends last year - feel good about it ?

Post by dbr » Thu Jan 10, 2019 10:00 pm

skor99 wrote:
Thu Jan 10, 2019 7:29 pm
but didn’t this income stream make my total returns less negative than what it would be otherwise ?
What do you mean by otherwise? There were dividends and dividends are included in total return by definition. The return ignoring dividends is more negative than what you actually got, obviously.

If you mean an alternate world where all the stocks held in your portfolio directly or indirectly for some reason did not pay dividends, then you don't know what the stock prices would have done and what the return would be in that alternate world.

If you mean that the total return of some selection of dividend paying stocks might be less negative than the total return of some selection of stocks that don't pay dividends, that might or might not be, but those two sets of stocks would be quite different in a lot of ways. An "otherwise" like that is not comparing apples and oranges.

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skor99
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Re: Around 43K in dividends last year - feel good about it ?

Post by skor99 » Thu Jan 10, 2019 10:42 pm

A couple of things I have heard recently is that companies which buy back their stock instead of paying dividends generally do worse than companies paying dividends. Of course, amazon and Netflix don’t pay dividends but I bet there are tons of companies that try to reinvest their earnings year after year and do worse than dividend paying companies.
Is there a definitive study somewhere that compares the medium to long term returns of dividend vs non dividend paying stocks?

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Re: Around 43K in dividends last year - feel good about it ?

Post by MathIsMyWayr » Thu Jan 10, 2019 10:54 pm

Vanguard total stock index fund (VTSAX), a bogleheads favorite, has a yield of 2.03% now. If your portfolio is about $2MM, then there is no way to avoid such dividends. That is a fact of investment life.

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Re: Around 43K in dividends last year - feel good about it ?

Post by FinancialRookie » Thu Jan 10, 2019 11:04 pm

livesoft wrote:
Thu Jan 10, 2019 7:34 pm
You should feel terrible about the $14K in taxable dividends.
Terrible? Seriously? Sometimes I think some people on this forum live in an alternate universe.

You should feel proud. That is an excellent accomplishment. Your total dividends is more than my annual salary. Keep up the good work.

antiqueman
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Re: Around 43K in dividends last year - feel good about it ?

Post by antiqueman » Thu Jan 10, 2019 11:17 pm

I had about that much in interest and dividends but it was all in a tax deferred account.

Do any of you who felt terrible about the 14k taxable, feel different about that much in a tax deferred account?

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Re: Around 43K in dividends last year - feel good about it ?

Post by JustinR » Thu Jan 10, 2019 11:32 pm

Read this recent thread to find out why you didn't make any money from these dividends, but actually lost a bunch of money:

viewtopic.php?p=4309296

So many people don't understand that you don't profit from dividends at all.


skor99 wrote:
Thu Jan 10, 2019 7:29 pm
My portfolio threw around 43K total dividends in 2018 ( was around 36K in 2017). Around 14 k is taxable. This number does not include cap gains distribution by mutual funds.

On one hand it feels good to see this stream of income coming in , but on the other I am still down by 90K for 2018 even after including this. Should I still be happy to see a positive flow that would hopefully keep going up or atleast stay steady barring a big economic downturn? I know people advice to only look at total returns, but didn’t this income stream make my total returns less negative than what it would be otherwise ?
No, it didn't. Dividends caused you to lose more money on top of the $90k.

When you receive a dividend in a taxable account, the result is that you are more poor than you were before.

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JoMoney
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Re: Around 43K in dividends last year - feel good about it ?

Post by JoMoney » Thu Jan 10, 2019 11:52 pm

If it helps you stay the course, I guess that might be good for you, but if I look at the returns of funds tilted to dividends,
like Vanguard 500 vs Vanguard High Dividend Fund, or Vanguard Growth vs Vanguard Value, you likely could have withdrawn more from the portfolio using a total return approach than from using the dividends.
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chevca
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Re: Around 43K in dividends last year - feel good about it ?

Post by chevca » Thu Jan 10, 2019 11:59 pm

FinancialRookie wrote:
Thu Jan 10, 2019 11:04 pm
livesoft wrote:
Thu Jan 10, 2019 7:34 pm
You should feel terrible about the $14K in taxable dividends.
Terrible? Seriously? Sometimes I think some people on this forum live in an alternate universe.

You should feel proud. That is an excellent accomplishment. Your total dividends is more than my annual salary. Keep up the good work.
I agree!

Is it optimal tax wise or whatever? Maybe not, probably not, i don't really know. But, the OP made almost as much as the median income for the US in dividends. At least last I knew it was around $50k.

Yes, they should really feel terrible about that.... :oops: :confused

Get a grip, some of you.

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Re: Around 43K in dividends last year - feel good about it ?

Post by Cash is King » Fri Jan 11, 2019 12:13 am

JustinR wrote:
Thu Jan 10, 2019 11:32 pm
Read this recent thread to find out why you didn't make any money from these dividends, but actually lost a bunch of money:

viewtopic.php?p=4309296

So many people don't understand that you don't profit from dividends at all.


skor99 wrote:
Thu Jan 10, 2019 7:29 pm
My portfolio threw around 43K total dividends in 2018 ( was around 36K in 2017). Around 14 k is taxable. This number does not include cap gains distribution by mutual funds.

On one hand it feels good to see this stream of income coming in , but on the other I am still down by 90K for 2018 even after including this. Should I still be happy to see a positive flow that would hopefully keep going up or atleast stay steady barring a big economic downturn? I know people advice to only look at total returns, but didn’t this income stream make my total returns less negative than what it would be otherwise ?
No, it didn't. Dividends caused you to lose more money on top of the $90k.

When you receive a dividend in a taxable account, the result is that you are more poor than you were before.
[/

OP,
Please disregard these comments as they make zero sense. Congrats on creating a nice stream of passive income. I received about the same amount in 2018 with taxable being a bit less at $12,700. :sharebeer

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Re: Around 43K in dividends last year - feel good about it ?

Post by wander » Fri Jan 11, 2019 12:56 am

chevca wrote:
Thu Jan 10, 2019 11:59 pm
FinancialRookie wrote:
Thu Jan 10, 2019 11:04 pm
livesoft wrote:
Thu Jan 10, 2019 7:34 pm
You should feel terrible about the $14K in taxable dividends.
Terrible? Seriously? Sometimes I think some people on this forum live in an alternate universe.

You should feel proud. That is an excellent accomplishment. Your total dividends is more than my annual salary. Keep up the good work.
I agree!

Is it optimal tax wise or whatever? Maybe not, probably not, i don't really know. But, the OP made almost as much as the median income for the US in dividends. At least last I knew it was around $50k.

Yes, they should really feel terrible about that.... :oops: :confused

Get a grip, some of you.
For me, my taxable account is also invested for retirement and I try to avoid dividend distribution as possible. The reason is I already have income and I don't need to pay tax for the dividend now when my tax bracket is still high and I rather delay it until retirement. Besides, if the dividend is ordinary type, I will have to pay tax at my current high tax rate (33% for example) for the full amount of $14k in this case and only have $9100 left after tax. However, if I hold on to the dividend and sell $14k worth of ETFs, I will only pay capital gain for the realized gain (I think long term capital gains tax rate is max at 20%) and should come out better than $9100.

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Re: Around 43K in dividends last year - feel good about it ?

Post by rh00p » Fri Jan 11, 2019 1:24 am

Additional food for thought from Fool.

https://goo.gl/X3fXfp
Preparing for the worst. Hoping for the best.

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Re: Around 43K in dividends last year - feel good about it ?

Post by alter » Fri Jan 11, 2019 2:37 am

Lot of misinformation on dividends here. Dividends are great and often when reinvesting them you get discounts on the share purchase price for their DRIP program, for example some Pimco funds. That is a straight up discount on shares. Theres a reason over 80% of the S&P500 companies pay a dividend. The discounted tax rate on qualified dividends is also a bonus.

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Re: Around 43K in dividends last year - feel good about it ?

Post by The Wizard » Fri Jan 11, 2019 4:49 am

MathIsMyWayr wrote:
Thu Jan 10, 2019 10:54 pm
Vanguard total stock index fund (VTSAX), a bogleheads favorite, has a yield of 2.03% now. If your portfolio is about $2MM, then there is no way to avoid such dividends. That is a fact of investment life.
Right.
OP should "feel good" that he has around $2M in his taxable investment account. Many folks don't have that much...
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Re: Around 43K in dividends last year - feel good about it ?

Post by cheesepep » Fri Jan 11, 2019 5:38 am

Don’t listen to these total return people here. 43k is good and most is tax free or taxed at a low rate. The income is earned every quarter and can pay bills and don’t want to wait until you are 65 and sell. That sit eh beauty of dividends.

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Re: Around 43K in dividends last year - feel good about it ?

Post by JustinR » Fri Jan 11, 2019 5:47 am

cheesepep wrote:
Fri Jan 11, 2019 5:38 am
Don’t listen to these total return people here. 43k is good and most is tax free or taxed at a low rate. The income is earned every quarter and can pay bills and don’t want to wait until you are 65 and sell. That sit eh beauty of dividends.
"Don't listen to all the people that actually know what they're talking about and answered the questions you asked factually."

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Re: Around 43K in dividends last year - feel good about it ?

Post by gilgamesh » Fri Jan 11, 2019 6:05 am

skor99 wrote:
Thu Jan 10, 2019 7:29 pm
My portfolio threw around 43K total dividends in 2018 ( was around 36K in 2017). Around 14 k is taxable. This number does not include cap gains distribution by mutual funds.
On one hand it feels good to see this stream of income coming in , but on the other I am still down by 90K for 2018 even after including this. Should I still be happy to see a positive flow that would hopefully keep going up or atleast stay steady barring a big economic downturn? I know people advice to only look at total returns, but didn’t this income stream make my total returns less negative than what it would be otherwise ?
May be looking at it, this way may help...

$43k in dividends and down $90k for a year...is that better than $0 dividends and down $47k?...I prefer the latter.

Your total return was NOT less negative because of dividends, the exact moment dividend was distributed your negative return increased exactly by the same amount. Only difference is, you may pay extra taxes. In your case dividend are most likely a bad thing.
Last edited by gilgamesh on Fri Jan 11, 2019 6:57 am, edited 1 time in total.

mmcmonster
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Re: Around 43K in dividends last year - feel good about it ?

Post by mmcmonster » Fri Jan 11, 2019 6:16 am

skor99 wrote:
Thu Jan 10, 2019 7:29 pm
Should I still be happy to see a positive flow that would hopefully keep going up or atleast stay steady barring a big economic downturn?
On the one hand it's less efficiency than if you didn't get the dividends (as others said), but...

On the other hand it's a sign that you've got enough investments to generate that much income without manually selling a single share.

I occasionally look at the Vanguard app and see what my income return in my taxable account is over the past year. (Mine is currently almost 2% of my total net worth. Obviously it's all reinvested)

I look at it as another goal post. My next goal may be to hit $50k of income return with my current investment strategy. You may want to consider similar. Of course, you may also want to see about lowering your taxable dividends as much as possible. :sharebeer

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Re: Around 43K in dividends last year - feel good about it ?

Post by t885 » Fri Jan 11, 2019 6:50 am

chevca wrote:
Thu Jan 10, 2019 11:59 pm
FinancialRookie wrote:
Thu Jan 10, 2019 11:04 pm
livesoft wrote:
Thu Jan 10, 2019 7:34 pm
You should feel terrible about the $14K in taxable dividends.
Terrible? Seriously? Sometimes I think some people on this forum live in an alternate universe.

You should feel proud. That is an excellent accomplishment. Your total dividends is more than my annual salary. Keep up the good work.
I agree!

Is it optimal tax wise or whatever? Maybe not, probably not, i don't really know. But, the OP made almost as much as the median income for the US in dividends. At least last I knew it was around $50k.

Yes, they should really feel terrible about that.... :oops: :confused

Get a grip, some of you.
I came here to post this.
There are two kinds of forecasters: those who don't know, and those who don't know they don't know

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Re: Around 43K in dividends last year - feel good about it ?

Post by livesoft » Fri Jan 11, 2019 7:17 am

This thread has some instances of Behavioral Finance at its best. I feel good about a lot of Normal People responding in this thread.
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Re: Around 43K in dividends last year - feel good about it ?

Post by samsoes » Fri Jan 11, 2019 7:24 am

FinancialRookie wrote:
Thu Jan 10, 2019 11:04 pm
livesoft wrote:
Thu Jan 10, 2019 7:34 pm
You should feel terrible about the $14K in taxable dividends.
Terrible? Seriously? Sometimes I think some people on this forum live in an alternate universe.

You should feel proud. That is an excellent accomplishment. Your total dividends is more than my annual salary. Keep up the good work.
Agree completely.

If anyone here feels terrible about a dividend payout, PM me and I'll send you the address for you to mail a check so you can rid yourself of those awful dividend dollars.
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Re: Around 43K in dividends last year - feel good about it ?

Post by livesoft » Fri Jan 11, 2019 8:15 am

I'd rather have $14,000 in untaxed gains than $14,000 in taxed dividends. Some taxpayers realize that those dividends can create even more taxes on Social Security, increase Medicare premiums, reduce tax credits, and push one over a tax cliff.
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Re: Around 43K in dividends last year - feel good about it ?

Post by Tycoon » Fri Jan 11, 2019 8:21 am

livesoft wrote:
Fri Jan 11, 2019 8:15 am
I'd rather have $14,000 in untaxed gains than $14,000 in taxed dividends. Some taxpayers realize that those dividends can create even more taxes on Social Security, increase Medicare premiums, reduce tax credits, and push one over a tax cliff.
I agree with this. Needlessly paying taxes is just plain dumb.
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Re: Around 43K in dividends last year - feel good about it ?

Post by munemaker » Fri Jan 11, 2019 8:26 am

FinancialRookie wrote:
Thu Jan 10, 2019 11:04 pm
livesoft wrote:
Thu Jan 10, 2019 7:34 pm
You should feel terrible about the $14K in taxable dividends.
Terrible? Seriously? Sometimes I think some people on this forum live in an alternate universe.

You should feel proud. That is an excellent accomplishment. Your total dividends is more than my annual salary. Keep up the good work.
Yes, you should feel proud to pay more taxes.

Seriously, you should make your taxable account more tax efficient.

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Re: Around 43K in dividends last year - feel good about it ?

Post by livesoft » Fri Jan 11, 2019 8:29 am

munemaker wrote:
Fri Jan 11, 2019 8:26 am
Seriously, you should make your taxable account more tax efficient.
It is possible that the OP's taxable account is tax efficient. There is no way getting around dividends. For instance, Vanguard Total Stock Market Index fund pays dividends and it is considered tax-efficient for a taxable account.
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Re: Around 43K in dividends last year - feel good about it ?

Post by f35phixer » Fri Jan 11, 2019 8:31 am

Well i look at it this way, my rollover i had ~65.8 K this year ~ 53K last year all dividend reinvestment. This years broke down ~ 65.8K for year and dec = 51.8K. reinvest in Dec was 800 shares at 28.57, 820 shares at 17.60 and 750 at 6.72 for my INT and then ~14K thru year for bonds/stocks. Why shouldn't i be happy that i have been adding all these shares and HOPEFULLY they still continue to grow and when i UNFORTUNATELY start RMD in 11 years they will be worth that much more, oh the first world problems we have.... :oops: I feel great/proud the i have a large portfolio and will be getting a nice pension/SS and blowing the dough. I do wish TSP would break down how the reinvest in done, but she's doing good too, she'll be my supplement till 66/8 for FRA SS.

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Re: Around 43K in dividends last year - feel good about it ?

Post by FoolMeOnce » Fri Jan 11, 2019 8:51 am

gilgamesh wrote:
Fri Jan 11, 2019 6:05 am
May be looking at it, this way may help...

$43k in dividends and down $90k for a year...is that better than $0 dividends and down $47k?...I prefer the latter.
We have a winner! It took a while, but we got to the clearest response.

Quickly followed by another:
livesoft wrote:
Fri Jan 11, 2019 8:15 am
I'd rather have $14,000 in untaxed gains than $14,000 in taxed dividends. Some taxpayers realize that those dividends can create even more taxes on Social Security, increase Medicare premiums, reduce tax credits, and push one over a tax cliff.
OP, you can feel good that you have a portfolio large enough to throw off $43k in dividends. But it did not help your return at all and created a slight tax drag. Some taxable dividends may be inevitable. I would feel neutral about your situation. I had more taxable dividends that I can't reasonable avoid; I'm not fretting about it much, though I would prefer not to get them.

Stanger
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Re: Around 43K in dividends last year - feel good about it ?

Post by Stanger » Fri Jan 11, 2019 9:07 am

Similar situation here, highest tax bracket and large dividends in taxable. What other choice do we have? VTSAX and VTIAX are tax efficient. The only other option I see is Berkshire stock, which doesn't distribute dividends. I am open to all suggestions on a more efficient tax strategy.

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Re: Around 43K in dividends last year - feel good about it ?

Post by J0721 » Fri Jan 11, 2019 9:10 am

Hopefully I am not hijacking this post but I think I have similar needs and questions. In the last couple of years I have been able to start putting some real money into funding a non-qualified brokerage account (after maxing all qualified options). I own ITOT for the low fees and diversification however the numbers are starting to get bigger and am wondering if I should be doing more to prevent tax problems today and down the road on these non-qualified accounts. I have about 500k in them today and with our regular deposits I anticipate the non-qualified accounts will be around 1.3m in about 3-4 years. I will probably be staying in the accumulation phase of life for another 5-10 years as we are in our late 30s. I believe we are in the 32% fed tax bracket and here in MN we get clipped pretty good for state taxes as well probably around 8-9%. I am mostly looking for advise on new dollars and any dollars I may be able to get from tax loss harvesting. I am not looking to sell gains and create more taxes. I have lots of dollars (flexibility) with our qualified accounts so If I need to overweight something in a qualified to make this work I can. Thanks in advance for the help!

livesoft
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Re: Around 43K in dividends last year - feel good about it ?

Post by livesoft » Fri Jan 11, 2019 9:15 am

@J0721 and everybody with a taxable investment account, in your situation taxable dividends cannot be avoided, but you can try to understand the tax-efficiency of the funds that you hold in your taxable account. To that end, I recommend that you understand what's going on in this other thread as it pertains to you:

viewtopic.php?t=242137

You may even want to create your own spreadsheet rather than use the one presented because that will help you:

1. Understand the actual calculations for your situation and investments, and
2. Understand where to get the data that goes into the spreadsheet.
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Re: Around 43K in dividends last year - feel good about it ?

Post by The Wizard » Fri Jan 11, 2019 9:57 am

livesoft wrote:
Fri Jan 11, 2019 8:29 am
munemaker wrote:
Fri Jan 11, 2019 8:26 am
Seriously, you should make your taxable account more tax efficient.
It is possible that the OP's taxable account is tax efficient. There is no way getting around dividends. For instance, Vanguard Total Stock Market Index fund pays dividends and it is considered tax-efficient for a taxable account.
Would be good if we knew more about the OP's taxable account and thus, where the dividends came from...
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Re: Around 43K in dividends last year - feel good about it ?

Post by Scooter57 » Fri Jan 11, 2019 10:07 am

If you don't have other sources of income to live on than your investments a case could be made that you came out ahead because you didn't have to sell stock shares in December at their lowest prices to pay your bills.

And if a portfolio of non dividend paying stocks you were comparing yours to was heavy in aggressive tech you might have done a lot worse with that in terms of total return.

I personally don't let tax considerations dominate my investment choices. I invest in the way most likely to preserve what I am fortunate enough to possess and let me sleep well at night and don't resent contributing my share to the services that help my fellow citizens.

There is an obsessional tendency on this forum to try to figure out some perfect way of investing. But the most perfect way for msmy people is the way that lets them stick to their plan year in and year out without reacting emotionally to short term fluctuations and doing stupid things. If dividend income lets you leave your portfolio alone during downturns or motivates you to buy more when yields are up, where's the harm?

I don't personally follow a dividend strategy but I've studied it enough to see it as a reasonable alternative for many retirees.

livesoft
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Re: Around 43K in dividends last year - feel good about it ?

Post by livesoft » Fri Jan 11, 2019 10:10 am

Scooter57 wrote:
Fri Jan 11, 2019 10:07 am
If you don't have other sources of income to live on than your investments a case could be made that you came out ahead because you didn't have to sell stock shares in December at their lowest prices to pay your bills.
An argument could be made that the fund managers and companies sold stock shares at their lowest prices in order to pay out the December dividends they paid.
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CyclingDuo
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Re: Around 43K in dividends last year - feel good about it ?

Post by CyclingDuo » Fri Jan 11, 2019 10:22 am

skor99 wrote:
Thu Jan 10, 2019 7:29 pm
My portfolio threw around 43K total dividends in 2018 ( was around 36K in 2017). Around 14 k is taxable. This number does not include cap gains distribution by mutual funds.

On one hand it feels good to see this stream of income coming in, but on the other I am still down by 90K for 2018 even after including this. Should I still be happy to see a positive flow that would hopefully keep going up or at least stay steady barring a big economic downturn? I know people advice to only look at total returns, but didn’t this income stream make my total returns less negative than what it would be otherwise ?
Sounds like the strategy of having the majority of dividend paying sources located in tax deferred as well as Roth accounts before having them located in taxable is what you have done as only about 1/3rd of your dividends are in taxable.

There is a "sweet spot" for one's AGI to absorb the qualified dividends at 0% before bumping up to 15% tax rates on those dividends to avoid the tax drag in taxable, but it is a narrow window to target with the ledge being $77,200 AGI for MFJ in 2018, but goes up to $78,750 for 2019 tax year. That's the window ledge we target for our dividends in the taxable account and offset the dividends by maxing out an additional tax deferred account from pre-tax salary deductions to keep our AGI within the "window" to pay 0% and shovel more of our actual salaries into tax deferred and keep our taxes low. This gives us the flexibility for the dividends in taxable to be reinvested in more shares of the same, taken as "salary replacement" income and spent, or invested in something that doesn't pay dividends such as growth stocks, or Berkshire Hathaway, or tax-exempt muni bonds, or used to help fund our Roth IRA accounts - at least during our current accumulation years and salaries.

That being said, the dividends are nothing special as in "it's not free money". Either you keep the capital being paid to you as a dividend from your investment by purchasing more shares of the underlying security/ETF/fund, or you take it out of the investment as part of your total return investing and do with it what you want. In either case, it can be a taxable event in your taxable account if your AGI is over the "window ledge threshold" or the dividends are of the non-qualified type.
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Re: Around 43K in dividends last year - feel good about it ?

Post by SuperGrafx » Fri Jan 11, 2019 10:36 am

FinancialRookie wrote:
Thu Jan 10, 2019 11:04 pm
livesoft wrote:
Thu Jan 10, 2019 7:34 pm
You should feel terrible about the $14K in taxable dividends.
Terrible? Seriously? Sometimes I think some people on this forum live in an alternate universe.
+1

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Re: Around 43K in dividends last year - feel good about it ?

Post by retiringwhen » Fri Jan 11, 2019 10:38 am

livesoft wrote:
Fri Jan 11, 2019 10:10 am
An argument could be made that the fund managers and companies sold stock shares at their lowest prices in order to pay out the December dividends they paid.
RE: Fund managers: You raise an interesting point when thinking about dividends and total stock market index funds (e.g., VTSAX, VTIAX, etc...) Really any index fund.

The fund needs to stay 100% invested in the market all the time to track the index, but they need to raise cash 4 times a year (normally) to payout those dividends.

That means when each of the companies in the index payout a dividend (at random dates as per each company's schedule) the fund has to immediately reinvest those funds.

For discussion purposes, lets assume 50% of all investors in VTSAX reinvest dividends and 50% don't (they go to their settlement account or some place not in the fund.)

For the 50% of dividend reinvested, there is no consequence as the money for all intents and purposes never leaves the fund, the fund manager just assumes it stays. It is essentially a book keeping activity only.

BUT for the remaining non-reinvested dividends, the index fund must reduce their underlying share count by the equivalent amount to make that cash payout. I guess the fund could use some futures/derivatives contracts of some sort to limit the transactions, but they still must effectively turn cash into shares each day an underlying dividend is paid and then turn around make the opposite happen on dividend day..... I had never considered that before (duh...)

As funds like VTSAX get bigger that transaction could have market impacts for sure if not managed carefully. If my 50% number is anywhere close the non-reinvested dividends, then on 12/20/18 VTSAX would have had to flow nearly $2B USD for dividends! Now I know why there always some futures/derivatives on the books when you review annual reports, etc.

BTW,I assume the ETF shares are almost all considered non-reinvesting from the fund manager's perspective as there is likely little insight for the fund manager on how and when the shares are reinvested if not held at Vanguard.

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Re: Around 43K in dividends last year - feel good about it ?

Post by The Wizard » Fri Jan 11, 2019 10:42 am

One way to lower dividends is to tilt to growth rather than value or blend.
Large growth index VIGAX had dividends of 1.4% for the four quarters of 2018, based on fourth quarter reinvest price.
Large value index VVIAX had dividends of 2.8%.
And total market index VTSAX had dividends of 2.1%.

And VIGAX's total return outperformed the other two over 1,3, and 5 year periods. But value sometimes outperforms growth, so can't expect VIGAX TR to always win...
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retiringwhen
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Re: Around 43K in dividends last year - feel good about it ?

Post by retiringwhen » Fri Jan 11, 2019 10:49 am

The Wizard wrote:
Fri Jan 11, 2019 10:42 am
One way to lower dividends is to tilt to growth rather than value or blend.
Large growth index VIGAX had dividends of 1.4% for the four quarters of 2018, based on fourth quarter reinvest price.
Large value index VVIAX had dividends of 2.8%.
And total market index VTSAX had dividends of 2.1%.

And VIGAX's total return outperformed the other two over 1,3, and 5 year periods. But value sometimes outperforms growth, so can't expect VIGAX TR to always win...
This history of those 2-funds if actually quite interesting to track since inception, they are a very good example of how a style (aka Growth vs. Value) cycles over time. At any given moment one is beating the other, but given time, the worm will turn and the other will take the lead. I evenly split my US Large-Cap equities allocation into these two funds with the value fund in my IRA and the growth in taxable last december. It reduced my taxable dividends payout by 20% in DEC without changing my overall asset allocation at all (a virtual 3-fund portfolio).

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skor99
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Re: Around 43K in dividends last year - feel good about it ?

Post by skor99 » Fri Jan 11, 2019 11:54 am

Thanks for all the responses. I understand the total return concept but who can guarantee that the companies not giving out dividends are making good use of that money ? Lots of Companies tend to buy back shares instead of dividends and analyses have shown that a lot of times that gives a poor ROI. Dividends are taxed but the money then is in shareholders hands that they can either reinvest if they choose to or make other use of the money.

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skor99
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Re: Around 43K in dividends last year - feel good about it ?

Post by skor99 » Fri Jan 11, 2019 11:58 am

The Wizard wrote:
Fri Jan 11, 2019 9:57 am
livesoft wrote:
Fri Jan 11, 2019 8:29 am
munemaker wrote:
Fri Jan 11, 2019 8:26 am
Seriously, you should make your taxable account more tax efficient.
It is possible that the OP's taxable account is tax efficient. There is no way getting around dividends. For instance, Vanguard Total Stock Market Index fund pays dividends and it is considered tax-efficient for a taxable account.
Would be good if we knew more about the OP's taxable account and thus, where the dividends came from...
Mostly dividends from mutual funds and ETFs such as the Van total stock market, VYM, VTI, SPY etc

WhiteMaxima
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Re: Around 43K in dividends last year - feel good about it ?

Post by WhiteMaxima » Fri Jan 11, 2019 12:03 pm

So better keep the dividend paying company in Roth IRA account.

SQRT
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Re: Around 43K in dividends last year - feel good about it ?

Post by SQRT » Fri Jan 11, 2019 12:07 pm

I’ve been retired for over 12 years and my divs represent over half my available cash flow. Pensions and some small investment liquidations the rest. For high earners in Canada the tax on the divs are pretty high though, about 32%. I would rather not pay this tax but there isn’t really much alternative as virtually all the conservative “blue chip’ companies in Canada pay divs. Current yield is close to 4% (with the market decline). Divs growing about 8% per year.

Best return metric is certainly “Total Return” no debate. All in all I still like when they increase divs as this is a sign of a growing, healthy company. My total returns since retirement have been about 10% CAGR.

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Re: Around 43K in dividends last year - feel good about it ?

Post by dbr » Fri Jan 11, 2019 12:25 pm

skor99 wrote:
Fri Jan 11, 2019 11:54 am
Thanks for all the responses. I understand the total return concept but who can guarantee that the companies not giving out dividends are making good use of that money ? Lots of Companies tend to buy back shares instead of dividends and analyses have shown that a lot of times that gives a poor ROI. Dividends are taxed but the money then is in shareholders hands that they can either reinvest if they choose to or make other use of the money.
On the other hand why invest in a company that keeps trying to give you your investment back. Why not sell the whole thing now and get it all back.

I suspect that stock picking is a more complicated proposition than merely being assured that companies that pay dividends will be the best investments.

More than that the main idea considered on this forum is holding an index of all possible stocks so that stock picking does not come into it.

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Re: Around 43K in dividends last year - feel good about it ?

Post by J0721 » Fri Jan 11, 2019 12:27 pm

For the guys who are trying to stay market neutral and putting growth in the taxable accounts how much are you allocating to small cap index and how much mid cap index?

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