VTSAX QDI [Total Stock Market Qualified Dividend]

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MikeonBogleheads
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VTSAX QDI [Total Stock Market Qualified Dividend]

Post by MikeonBogleheads » Wed Dec 14, 2016 2:31 pm

Vanguard's estimate of yearend dividend and CG distributions published 12/9/2016 estimated Vanguard Total Stock Market Admiral fund to have a QDI of 92%. That is awful low isn't it? Last year it was 100%.

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by triceratop » Wed Dec 14, 2016 3:27 pm

Welcome to the Bogleheads!

Vanguard's VTSAX QDI was not 100% last year; it was closer to 95%. However, there is a little-known IRS rule that if a fund has 95% QDI or higher then all of its income can be considered qualified dividend income. That is what occurred last year. So the dip is, as estimated currently, much milder than the 8% or so that it might seem just by looking at the tax consequences to you, and not the fund company.

Source: 26 U.S. Code § 854 - Limitations applicable to dividends received from regulated investment company

I hope that helps.

P.S. it helps to use the full fund names rather than ticker symbols; not all are familiar with all fund tickers.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by TIAX » Sat Dec 24, 2016 6:28 pm

Any idea why the QDI was at least 3% lower this year than last year?

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by sport » Sat Dec 24, 2016 7:34 pm

TIAX wrote:Any idea why the QDI was at least 3% lower this year than last year?
Perhaps they lent out some stocks and received some interest rather than dividends.

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by triceratop » Sat Dec 24, 2016 7:47 pm

sport wrote:
TIAX wrote:Any idea why the QDI was at least 3% lower this year than last year?
Perhaps they lent out some stocks and received some interest rather than dividends.
Note: The annual report from 12/31/2015 had $3,502,000 securities lending revenue on $400,651,057,000 net assets. The annual report out soon, in perhaps a month, will have the answer to this explanation and this post is a reminder to myself to update back when the report is out.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by TIAX » Sat Dec 24, 2016 8:37 pm

triceratop wrote:
sport wrote:
TIAX wrote:Any idea why the QDI was at least 3% lower this year than last year?
Perhaps they lent out some stocks and received some interest rather than dividends.
Note: The annual report from 12/31/2015 had $3,502,000 securities lending revenue on $400,651,057,000 net assets. The annual report out soon, in perhaps a month, will have the answer to this explanation and this post is a reminder to myself to update back when the report is out.
Thanks, I'll be looking forward to your post. Do you have any thoughts on why 7% of the dividends are not qualified?

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by triceratop » Sat Dec 24, 2016 10:32 pm

TIAX wrote:
triceratop wrote:
sport wrote:
TIAX wrote:Any idea why the QDI was at least 3% lower this year than last year?
Perhaps they lent out some stocks and received some interest rather than dividends.
Note: The annual report from 12/31/2015 had $3,502,000 securities lending revenue on $400,651,057,000 net assets. The annual report out soon, in perhaps a month, will have the answer to this explanation and this post is a reminder to myself to update back when the report is out.
Thanks, I'll be looking forward to your post. Do you have any thoughts on why 7% of the dividends are not qualified?
Income from REITs do not result in qualified dividends. The securities lending is another, but does not appear to be nearly significant enough.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by TIAX » Sat Dec 24, 2016 10:55 pm

Thanks, how does the securities lending generate non-qualified dividends?

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by sport » Sun Dec 25, 2016 12:52 am

TIAX wrote:Thanks, how does the securities lending generate non-qualified dividends?
As I understand it, when a fund lends stocks, they receive treasury bonds/notes/bills as collateral. Those securities pay interest to the holder. That interest is high enough to make the lending worthwhile.

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by grabiner » Sun Dec 25, 2016 10:01 pm

TIAX wrote:Thanks, how does the securities lending generate non-qualified dividends?
If you lend out a security which pays a dividend, the borrower is required to pay you an amount equal to the dividend, as compensation for the dividend you did not receive because you did not actually hold the stock. This payment is not an actual dividend from the stock, so it is taxed as a non-qualified dividend.
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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by TIAX » Sun Dec 25, 2016 11:16 pm

grabiner wrote:
TIAX wrote:Thanks, how does the securities lending generate non-qualified dividends?
If you lend out a security which pays a dividend, the borrower is required to pay you an amount equal to the dividend, as compensation for the dividend you did not receive because you did not actually hold the stock. This payment is not an actual dividend from the stock, so it is taxed as a non-qualified dividend.
I see. Thanks grabiner! Considering the tax treatment of these dividends, does security lending benefit the mutual fund owners?

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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by grabiner » Mon Dec 26, 2016 5:54 pm

TIAX wrote:
grabiner wrote:
TIAX wrote:Thanks, how does the securities lending generate non-qualified dividends?
If you lend out a security which pays a dividend, the borrower is required to pay you an amount equal to the dividend, as compensation for the dividend you did not receive because you did not actually hold the stock. This payment is not an actual dividend from the stock, so it is taxed as a non-qualified dividend.
I see. Thanks grabiner! Considering the tax treatment of these dividends, does security lending benefit the mutual fund owners?
It may still be a benefit. Many fundholders hold the fund in IRAs and 401(k)s, and don't care about taxes. For Total Stock Market, the rule that a fund with over 95% qualified may count it as 100% also reduces the potential tax cost. And even if there is an extra tax cost, if the return from the extra tax cost is more than the tax, that is a net benefit. Vanguard's 500 and Total Stock Market Index funds tend to slightly outperform the indexes before expenses, and securities lending income may be part of the reason.
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Re: VTSAX QDI [Total Stock Market Qualified Dividend]

Post by JDDS » Tue Dec 27, 2016 1:08 am

I don't have a source handy, but I think last year they indicated a similar percentage, but then in the end it was 100%. I'm not saying it will turn out the same way this year, but you can hope.

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