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

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

Post by Random Poster » Fri Jan 11, 2019 8:22 pm

triceratop wrote:
Fri Jan 11, 2019 8:11 pm
Random Poster wrote:
Fri Jan 11, 2019 8:09 pm
JustinR wrote:
Fri Jan 11, 2019 6:07 pm

A few points that all investors should drill into their head:



- Dividends are only "passive income" in the sense that they are your shares being sold off without your input or control. And remember that income in this situation doesn't mean "gain wealth"... it's more like a simple cash transfer from your brokerage account to your bank account (with a tax transfer fee).

I’m pretty sure that when I receive dividends from my Total Stock Market fund, none of my shares are being sold off.

The shares may be worth less the day after the dividend than they were the day before the dividend, but I still have the exact same number of shares after the dividend is paid that I had the day before the dividend is paid.
You own fewer shares of each of the individual companies in TSM. I don't know why anyone cares about how many shares of TSM specifically that they own; it's not like there is any real value to one's proxy vote on fund governance.
I’ve never heard that before, but even when I receive dividends from a single company, I absolutely do not own fewer shares of it when the dividend is paid. I own 100 shares the day before the dividend, the day the dividend is paid, and the day after the dividend is paid.

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

Post by triceratop » Fri Jan 11, 2019 8:29 pm

Random Poster wrote:
Fri Jan 11, 2019 8:22 pm
triceratop wrote:
Fri Jan 11, 2019 8:11 pm
Random Poster wrote:
Fri Jan 11, 2019 8:09 pm
JustinR wrote:
Fri Jan 11, 2019 6:07 pm

A few points that all investors should drill into their head:



- Dividends are only "passive income" in the sense that they are your shares being sold off without your input or control. And remember that income in this situation doesn't mean "gain wealth"... it's more like a simple cash transfer from your brokerage account to your bank account (with a tax transfer fee).

I’m pretty sure that when I receive dividends from my Total Stock Market fund, none of my shares are being sold off.

The shares may be worth less the day after the dividend than they were the day before the dividend, but I still have the exact same number of shares after the dividend is paid that I had the day before the dividend is paid.
You own fewer shares of each of the individual companies in TSM. I don't know why anyone cares about how many shares of TSM specifically that they own; it's not like there is any real value to one's proxy vote on fund governance.
I’ve never heard that before, but even when I receive dividends from a single company, I absolutely do not own fewer shares of it when the dividend is paid. I own 100 shares the day before the dividend, the day the dividend is paid, and the day after the dividend is paid.
That you have not heard it before doesn't make what I said untrue. It's simple math. Assume no dividends occur in the stock market over the following two days and that also the stock market experiences no price changes.

Day T+0: TSM has a value of $100M (invested in the stock market). 100M shares each $1.
Day T+1: TSM pays a $0.01 dividend. TSM now has a value of $99M (invested in the stock market). 100M shares each $0.99.

How is it possible for the TSM fund to own the same number of shares with $99M as they did with $100M?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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

Post by chinchin » Fri Jan 11, 2019 8:58 pm

triceratop wrote:
Fri Jan 11, 2019 8:29 pm
Random Poster wrote:
Fri Jan 11, 2019 8:22 pm
triceratop wrote:
Fri Jan 11, 2019 8:11 pm
Random Poster wrote:
Fri Jan 11, 2019 8:09 pm
JustinR wrote:
Fri Jan 11, 2019 6:07 pm

A few points that all investors should drill into their head:



- Dividends are only "passive income" in the sense that they are your shares being sold off without your input or control. And remember that income in this situation doesn't mean "gain wealth"... it's more like a simple cash transfer from your brokerage account to your bank account (with a tax transfer fee).

I’m pretty sure that when I receive dividends from my Total Stock Market fund, none of my shares are being sold off.

The shares may be worth less the day after the dividend than they were the day before the dividend, but I still have the exact same number of shares after the dividend is paid that I had the day before the dividend is paid.
You own fewer shares of each of the individual companies in TSM. I don't know why anyone cares about how many shares of TSM specifically that they own; it's not like there is any real value to one's proxy vote on fund governance.
I’ve never heard that before, but even when I receive dividends from a single company, I absolutely do not own fewer shares of it when the dividend is paid. I own 100 shares the day before the dividend, the day the dividend is paid, and the day after the dividend is paid.
That you have not heard it before doesn't make what I said untrue. It's simple math. Assume no dividends occur in the stock market over the following two days and that also the stock market experiences no price changes.

Day T+0: TSM has a value of $100M (invested in the stock market). 100M shares each $1.
Day T+1: TSM pays a $0.01 dividend. TSM now has a value of $99M (invested in the stock market). 100M shares each $0.99.

How is it possible for the TSM fund to own the same number of shares with $99M as they did with $100M?
In your own post you say it has 100M shares before and after the distribution. Are you confusing share count with market cap?

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

Post by triceratop » Fri Jan 11, 2019 9:23 pm

chinchin wrote:
Fri Jan 11, 2019 8:58 pm
In your own post you say it has 100M shares before and after the distribution. Are you confusing share count with market cap?
I never stated that the share count of the TSM fund, the number of shares of the TSM fund that exist, changes. I did not confuse anything.

edit: to add subordinate clause to clarify.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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

Post by chinchin » Fri Jan 11, 2019 9:26 pm

triceratop wrote:
Fri Jan 11, 2019 9:23 pm
chinchin wrote:
Fri Jan 11, 2019 8:58 pm
In your own post you say it has 100M shares before and after the distribution. Are you confusing share count with market cap?
I never stated that the share count of the TSM fund changes. I did not confuse anything.
You stated, "You own fewer shares of each of the individual companies in TSM" after a distribution in an earlier post.

Is this really a true statement?

If Apple pays a dividend and TSM owned X number of shares before the dividend, does that number X go down?

What if Apple was the only stock TSM owned?

If I have 10 Apple shares and Apple paid a 10% dividend, does my share count go down to 9?

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

Post by triceratop » Fri Jan 11, 2019 9:29 pm

chinchin wrote:
Fri Jan 11, 2019 9:26 pm
triceratop wrote:
Fri Jan 11, 2019 9:23 pm
chinchin wrote:
Fri Jan 11, 2019 8:58 pm
In your own post you say it has 100M shares before and after the distribution. Are you confusing share count with market cap?
I never stated that the share count of the TSM fund changes. I did not confuse anything.
You stated, "You own fewer shares of each of the individual companies in TSM" after a distribution in an earlier post.

Is this really a true statement?

If Apple pays a dividend and TSM owned X number of shares before the dividend, does that number X go down?

What if Apple was the only stock TSM owned?

If I have 10 Apple shares and Apple paid a 10% dividend, does my share count go down to 9?
The TSM fund dividend does not coincide with any particular company's dividend. TSM reinvests dividends it receives over the course of the quarter/half/year back into the stock market to minimize tracking error against a TSM total return benchmark and then must sell stocks to distribute dividends to its shareholders. It is not a constituent stock's dividend event which results in fewer shares owned, it is the fund-level dividend event.

My prior post constitutes a proof that you own fewer shares of each of the individual companies in TSM after a TSM distribution.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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

Post by chinchin » Fri Jan 11, 2019 9:33 pm

triceratop wrote:
Fri Jan 11, 2019 9:29 pm

My prior post constitutes a proof that you own fewer shares of each of the individual companies in TSM after a TSM distribution.

Yes, but only after TSM already re-invested its dividends per your explanation.

Not sure how that matters to the average investor, but thanks anyways. I guess I learned something about TSM.

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

Post by triceratop » Fri Jan 11, 2019 9:36 pm

There was incorrect information that I corrected. Correctness matters for its own sake. Whether it matters to an individual investor as a standalone point really doesn't enter my calculus. I would not make many posts on such a detail except there was a question raised about whether what I posted was accurate.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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

Post by livesoft » Fri Jan 11, 2019 9:38 pm

To try to help clarify:

The outstanding number of shares that a mutual fund has depends on the number of shares of the fund created and sold to clients (shareholders of the fund). An open-ended mutual fund is called open-ended because of the creation of new shares when a shareholder buys shares in excess of the shares in the fund being sold that day. That is a reason why the share is sold at Net Asset Value or NAV.

So if a fund has no new buys nor sells by existing shareholders or new shareholders, then the number of shares in the fund do not change.

Do not confuse shares of the fund with stock shares of individual companies that the fund owns. So if the fund has to pay out dividends, where does it get the money to do so? It could have "uninvested" cash on hand in its bank accounts, but it could also sell stock of any of the companies that it owns stock of. If the fund manager(s) choose to sell stock shares of any of the companies that the fund owns, then the number of outstanding shares that the fund has issued does not have to change even if the one of the positions that the fund owns does have a change in the number of shares.

And if the total value of the assets that a mutual fund owns drops (either by market action and changing of asset prices or by paying out a cash dividend), but the number of outstanding shares does not drop, then something has to give and that something is the NAV of a fund share. The NAV drops.
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chinchin
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Re: Around 43K in dividends last year - feel good about it ?

Post by chinchin » Fri Jan 11, 2019 9:46 pm

triceratop wrote:
Fri Jan 11, 2019 9:36 pm
There was incorrect information that I corrected. Correctness matters for its own sake. Whether it matters to an individual investor as a standalone point really doesn't enter my calculus. I would not make many posts on such a detail except there was a question raised about whether what I posted was accurate.
Actually, per your explanation of TSM's reinvestment and distribution mechanism, this statement you made was incorrect (or at least inconsistent)
Day T+0: TSM has a value of $100M (invested in the stock market). 100M shares each $1.

Day T+1: TSM pays a $0.01 dividend. TSM now has a value of $99M (invested in the stock market). 100M shares each $0.99.
The last part would be 99M shares each $1 per your continuation of the explanation. Right? The assuming the value of the underlying shares were maintained at NAV overnight between T+0 and T+1?

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

Post by chinchin » Fri Jan 11, 2019 9:56 pm

triceratop wrote:
Fri Jan 11, 2019 8:29 pm
That you have not heard it before doesn't make what I said untrue. It's simple math. Assume no dividends occur in the stock market over the following two days and that also the stock market experiences no price changes.

Day T+0: TSM has a value of $100M (invested in the stock market). 100M shares each $1.
Day T+1: TSM pays a $0.01 dividend. TSM now has a value of $99M (invested in the stock market). 100M shares each $0.99.

How is it possible for the TSM fund to own the same number of shares with $99M as they did with $100M?
"Assume no dividends occur in the stock market over the following two days and that also the stock market experiences no price changes." - Then why did the per share price of TSM's underlying shares fall from $1 to .99 between T+0 and T+1?

edit: per share price vice NAV

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

Post by The Wizard » Fri Jan 11, 2019 10:01 pm

I'm thinking the thread is getting away from the OP's question on dividends being a good thing or not...
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Re: Around 43K in dividends last year - feel good about it ?

Post by Random Poster » Fri Jan 11, 2019 10:12 pm

triceratop wrote:
Fri Jan 11, 2019 9:23 pm
chinchin wrote:
Fri Jan 11, 2019 8:58 pm
In your own post you say it has 100M shares before and after the distribution. Are you confusing share count with market cap?
I never stated that the share count of the TSM fund, the number of shares of the TSM fund that exist, changes. I did not confuse anything.

edit: to add subordinate clause to clarify.
Hardly. I can’t follow your changing explanations and I find them all to be very confusing.

I stand by my earlier comments that “I’m pretty sure that when I receive dividends from my Total Stock Market fund, none of my shares are being sold off” and “when I receive dividends from a single company, I absolutely do not own fewer shares of it when the dividend is paid. I own 100 shares the day before the dividend, the day the dividend is paid, and the day after the dividend is paid.”

Nothing you have stated refutes that, and nothing that you have stated has clarified whatever point it is that you are trying to make.

But no matter. Whether dividends are something to feel horrible about or not, I’ll continue to accept them and do with them what I wish.

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

Post by chinchin » Fri Jan 11, 2019 10:19 pm

Excerpt from the 2017 annual report of Vanguard Total Stock Market Index Fund:

Investment income Year ended 2017
---------------------------------
...
Dividends 11,052,585
...

Statement of Changes in Net Assets
---------------------------------------------------------
...
Total Distributions Year ended 2017 (10,883,331)
...



It also made money from "Securities Lending," etc.

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

Post by Pigeye Brewster » Fri Jan 11, 2019 10:52 pm

Interesting thread...

Dividends are inherently neither a feel good nor feel bad item. Like any number of things, it depends on the investor's own personal situation. In tax-sheltered accounts, there is no substantive difference. As for taxable accounts, if the investor is living off the portfolio return, they are simply a convenient cash element of the total return. Given their tax treatment, it's no different than generating cash flow by selling shares. For others, who may not need the cashflow, they can be sort of a negative. But if you look at things on a tax-adjusted basis, maybe not since dividends and capital gains share the same tax rate.

Regardless of whether you need them or not, they're a fact of investing life. So relax, hold funds like VTSAX or VFIAX in your taxable account and know that you've got very tax-efficient funds even if you don't need or want the dividend income. :beer

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

Post by PhysicianOnFIRE » Fri Jan 11, 2019 11:26 pm

livesoft wrote:
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.
:sharebeer

This and your other reply are spot on.

One common argument put forth by dividend enthusiasts is that you never have to sell shares when they're down. I've argued that you're effectively forced to sell shares when down whenever a dividend is paid in a down market. And if the company never lowers its dividend, you're effectively selling at a higher percentage when the NAV is lower.

One thing that wasn't clear to me from the OP was what types of accounts the $43k is coming from. I'm guessing the $14k from a taxable account and the rest in tax-sheltered. Personally, I don't know what my annual dividend yield is because the only account I care about dividends in is the taxable account, and I'd prefer to minimize them there. I'm invested tax efficiently (Vanguard US and international stock funds) with about a 2% dividend yield. I'll be paying about $8,000 in taxes on those dividends this year. 15% + 3.8% NIIT + 9.85% state income tax.

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

Post by triceratop » Fri Jan 11, 2019 11:29 pm

chinchin wrote:
Fri Jan 11, 2019 9:46 pm
triceratop wrote:
Fri Jan 11, 2019 9:36 pm
There was incorrect information that I corrected. Correctness matters for its own sake. Whether it matters to an individual investor as a standalone point really doesn't enter my calculus. I would not make many posts on such a detail except there was a question raised about whether what I posted was accurate.
Actually, per your explanation of TSM's reinvestment and distribution mechanism, this statement you made was incorrect (or at least inconsistent)
Day T+0: TSM has a value of $100M (invested in the stock market). 100M shares each $1.

Day T+1: TSM pays a $0.01 dividend. TSM now has a value of $99M (invested in the stock market). 100M shares each $0.99.
The last part would be 99M shares each $1 per your continuation of the explanation. Right? The assuming the value of the underlying shares were maintained at NAV overnight between T+0 and T+1?
No, neither inconsistent nor incorrect. The 100M shares are shares of the TSM mutual fund. The number of mutual fund shares stays the same (no shareholders redeemed their shares), and the per-share NAV falls by distributing $1M cash to shareholders of the fund. That cash had to come from somewhere. Where? Either from "uninvested" cash or by selling stocks held by the fund into the market. The market value of the underlying stock shares can remain constant across the two days while their ownership changes (the fund no longer owns the stocks).

This example shows that a mutual fund's NAV (share price) can and does change in response to a dividend event even when the stock market price of underlying shares does not.

Or as livesoft put it:
livesoft wrote: So if a fund has no new buys nor sells by existing shareholders or new shareholders, then the number of shares in the fund do not change.

Do not confuse shares of the fund with stock shares of individual companies that the fund owns. So if the fund has to pay out dividends, where does it get the money to do so? It could have "uninvested" cash on hand in its bank accounts, but it could also sell stock of any of the companies that it owns stock of. If the fund manager(s) choose to sell stock shares of any of the companies that the fund owns, then the number of outstanding shares that the fund has issued does not have to change even if the one of the positions that the fund owns does have a change in the number of shares.
But who cares?: The point of all of this (and why it is not truly off-topic) is that mutual fund dividends are nothing special and so receiving $X in dividends in a year is not something to feel good or bad about, before taxes. After taxes, we can see that there may be reasons to feel less than ecstatic about dividends.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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

Post by JustinR » Fri Jan 11, 2019 11:42 pm

Pigeye Brewster wrote:
Fri Jan 11, 2019 10:52 pm
Interesting thread...

Dividends are inherently neither a feel good nor feel bad item. Like any number of things, it depends on the investor's own personal situation. In tax-sheltered accounts, there is no substantive difference. As for taxable accounts, if the investor is living off the portfolio return, they are simply a convenient cash element of the total return. Given their tax treatment, it's no different than generating cash flow by selling shares.
Nope. Dividends are absolutely worse than selling shares yourself:

1. With dividends, you're taxed on the entire amount. When selling shares, you recover the principle so you're only taxed on the gain.

2. With dividends, some of it may not be qualified, which means some may be taxed at regular income rates instead of LTCG. When selling shares, all of it is taxed at LTCG rates.

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

Post by NoHeat » Sat Jan 12, 2019 12:22 am

dbr wrote:
Fri Jan 11, 2019 12:25 pm

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.
Dividends are not "your investment back."

Stocks are all about owning a company. Dividends are part of the earnings of the company. A small growing company can reinvest its earnings within the company, in projects that help it grow, and it should do exactly that. But a mature company is different - it typically produces more earnings than it can reinvest internally in projects with a good rate of return, and for such a company it is right that it should return some of its earnings to its owners who can then reinvest at a higher return than the company can internally. That's what dividends are all about.

If you don't want dividends, then what you're really saying is that you don't want to own mature companies that can't find projects with a higher rate of return than what you as a shareholder can find elsewhere. If that's the case, then just avoid those companies, buy small growth companies, and live with the resulting higher volatility.

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

Post by FinancialRookie » Sat Jan 12, 2019 12:20 pm

JustinR wrote:
Fri Jan 11, 2019 4:53 pm
Darth Xanadu wrote:
Fri Jan 11, 2019 2:16 pm
Would all of you feel the same if all your mutual funds decided simultaneously and unilaterally to liquidate your entire portfolio and send you a big check? I wouldn't think so...
Exactly. Imagine if Vanguard issued him a $2m dividend.

The people in this thread congratulating him or denying that receiving a dividend is terrible simply don't understand what dividends are.

"Wow!! Congratulations on the $2m of income. Life is great!! Receiving a $2m dividend is quite a blessing!!"
I understand exactly what dividends are. If the OP's goal is to live off dividend income, then he is doing quite well. It sounds like all of his tax advantaged buckets are being filled so receiving taxable dividends is just going to be the name of the game. I don't think anyone is arguing that taxable dividends cause a drag on growth that is obvious.

It all depends on the OP's retirement strategy. Living off dividend income is no different than selling shares from a completely non dividend paying portfolio. So why are we arguing about how dividends work? Seems like people like to argue for argument's sake. No one who has said the OP is doing well has stated that dividends are a superior strategy, that they are the end all be all, that they are perfect. They are one form of exchanging the value of your portfolio into cash flow. Not the best one, not the only one, not the tax free one, ONE of the options.

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

Post by dbr » Sat Jan 12, 2019 12:34 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 ?
The actual answer is that you should be neither happy nor not happy that you have those dividends coming in nor should you be happy nor not happy that your total asset value is down by 90K for 2018. Those are the things investments do and the question would be what did you expect?

As for the "less negative" part, if asset prices all came out the same way but you didn't get the dividends, then certainly your total asset decline would be more. But that is obvious.

A reason people advise looking at total return is so that one does not start agonizing over ones investment selections concerning dividend/no dividend, etc. That would also short circuit most of this thread.

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

Post by Cash is King » Sat Jan 12, 2019 12:58 pm

PhysicianOnFIRE wrote:
Fri Jan 11, 2019 11:26 pm



One common argument put forth by dividend enthusiasts is that you never have to sell shares when they're down. I've argued that you're effectively forced to sell shares when down whenever a dividend is paid in a down market. And if the company never lowers its dividend, you're effectively selling at a higher percentage when the NAV is lower.


I don't understand. Can you provide some examples?


Cheers.

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

Post by Scooter57 » Sat Jan 12, 2019 7:57 pm

livesoft wrote:
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.
The fund is distributing dividends the stocks it holds have paid over the past couple months, not selling shares of the stocks. These companies, if well run, are distributing a share of profits to the shareholders who are part owners of the companies, not selling shares to fund the dividend. If you actually observe real stock prices after distributions you will see the price does not drop to match the payout though people here often argue it should.

The whole idea behind buying stock was that part owners should share part of the profits after investing money in the company. It's a sign of how brainwashed we are by the billionaires who get paid via stock options that are worth more with buybacks that many people think dividends are bad.

Without a dividend the only value to your share is if you can convince some sucker the nonproductive share is worth more than you paid for it. Herd mentality, that works when everyone thinks shares are going up. But when they aren't, the dividend is nice to have.

I keep seeing it posted on these forums that a large part of the longtime gain in the S&P over decades came from the dividends. If the public becomes disillusioned with stocks as they have been in the past, those dividends might again be a big contributor to total return.

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

Post by SGM » Sat Jan 12, 2019 8:20 pm

Dividends can't be avoided, but they are not as tax efficient in a taxable account. I am a total return investor, but I mostly spend dividends. It is convenient and doesn't require any decisions about selling funds. Rationally dividends are not as good as having capital gains, but they do add to total return. It has always been considered a puzzle as to why investors like dividends. I understand the issues, but don't mind getting the dividends. I either spend them or reallocate them. If you are getting $43k in dividends a year you have a sizeable portfolio. I wouldn't feel bad about it.

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

Post by triceratop » Sat Jan 12, 2019 8:24 pm

Scooter57 wrote:
Sat Jan 12, 2019 7:57 pm
livesoft wrote:
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.

The fund is distributing dividends the stocks it holds have paid over the past couple months, not selling shares of the stocks.
These companies, if well run, are distributing a share of profits to the shareholders who are part owners of the companies, not selling shares to fund the dividend. If you actually observe real stock prices after distributions you will see the price does not drop to match the payout though people here often argue it should.

The whole idea behind buying stock was that part owners should share part of the profits after investing money in the company. It's a sign of how brainwashed we are by the billionaires who get paid via stock options that are worth more with buybacks that many people think dividends are bad.

Without a dividend the only value to your share is if you can convince some sucker the nonproductive share is worth more than you paid for it. Herd mentality, that works when everyone thinks shares are going up. But when they aren't, the dividend is nice to have.

I keep seeing it posted on these forums that a large part of the longtime gain in the S&P over decades came from the dividends. If the public becomes disillusioned with stocks as they have been in the past, those dividends might again be a big contributor to total return.
I highlighted the sentence in your post that is incorrect. The fund does sell stocks to make distributions (it also definitely is money that is income from dividends received so that part of your post is correct, but additionally it has to sell stocks at the time of distribution). How do I know what I say is true and what you say is false?

Looking at the last annual report:

Image

The fund tracks a total return index (an index obtained by reinvesting dividends from constituent stocks of the index back into the index as company dividends are declared) nearly perfectly. If the fund simply held the dividends in short-term cash it would not be able to replicate the performance so exactly (there would be substantial noise depending on performance of stocks after dividends were received by the fund from companies). Since the fund reinvests into stocks with received dividends (well really it has to sell stock exposure, which it could do with derivatives), it must sell stocks to meet cash demands for distributions like dividends.

What livesoft meant when he said the fund managers sold stocks at a low point was because the distribution schedule for many funds aligned with a sharp downturn. If one didn't immediately reinvest dividends then one in effect sold stocks at a low, because reinvesting those cash dividends even a few days later would have been at much higher prices.

It's well-discussed that Unit Investment Trusts like the SPY have a weakness relative to open-ended mutual funds in this respect because a fund like SPY actually does have to hold dividends in cash until distribution.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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

Post by inbox788 » Sat Jan 12, 2019 8:50 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 ?
If you've got a diversified BH portfolio, then 43k in dividends is great! Ignore the Y-Y fluctuations in the market, and figure out how much you'll need in retirement. The conventional wisdom is that 2/3 of the market gains go out as dividends, so the 1/3 remaining will go towards growing your investment value. Over the long run, your dividends should grow along with your investment, and that should be able to keep up with inflation.

viewtopic.php?f=10&t=205680

If you generate enough dividends to spend in retirement, and dividends are about 2%, then you're well below the 4% SWR. You can even tap into your investments and sell a little bit of your assets if you need to.

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

Post by FoolMeOnce » Sat Jan 12, 2019 9:13 pm

Random Poster wrote:
Fri Jan 11, 2019 10:12 pm
I stand by my earlier comments that “I’m pretty sure that when I receive dividends from my Total Stock Market fund, none of my shares are being sold off” and “when I receive dividends from a single company, I absolutely do not own fewer shares of it when the dividend is paid. I own 100 shares the day before the dividend, the day the dividend is paid, and the day after the dividend is paid.”
Both of these statements are correct, and neither addresses triceratop's point.

1) When a fund issues a dividend, you maintain the same number of shares of the fund.

2) When an individual company equity issues a dividend, you maintain the same number of shares of that company.

3) triceratop's point: When a fund issues a dividend, it sells shares of the assets it holds, and you thus own-through your ownership of the fund-fewer shares of the underlying equities that comprise the fund.

I would think reinvestment gets you back to the same ownership of the underlying equities via the fund, but I don't feel like thinking about the math. But, still, the statement that launched this whole exchange stands: (underlying) shares are being sold without your input or control. You can buy them back, but you may have tax consequences you did not want.

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

Post by chinchin » Sat Jan 12, 2019 9:26 pm

FoolMeOnce wrote:
Sat Jan 12, 2019 9:13 pm
.

3) triceratop's point: When a fund issues a dividend, it sells shares of the assets it holds, and you thus own-through your ownership of the fund-fewer shares of the underlying equities that comprise the fund.

Unless it is a UIT like SPY which Triceratops noted.

The reinvesting/divesting thing is just to goose returns on the guess that markets will go up. Where does it say in the prospectus that they have to do it or it is even a strategy. Is it mentioned at all? In fact we have people assuming that big V does it, but is that a fact or an assumption?

If my ETF makes money from Securities Lending should I feel bad that I am profiting from short sellers?

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

Post by MathIsMyWayr » Sat Jan 12, 2019 9:34 pm

triceratop wrote:
Sat Jan 12, 2019 8:24 pm

... Since the fund reinvests into stocks with received dividends (well really it has to sell stock exposure, which it could do with derivatives), it must sell stocks to meet cash demands for distributions like dividends.

What livesoft meant when he said the fund managers sold stocks at a low point was because the distribution schedule for many funds aligned with a sharp downturn. If one didn't immediately reinvest dividends then one in effect sold stocks at a low, because reinvesting those cash dividends even a few days later would have been at much higher prices.

It's well-discussed that Unit Investment Trusts like the SPY have a weakness relative to open-ended mutual funds in this respect because a fund like SPY actually does have to hold dividends in cash until distribution.
If a large fund like S&P 500 market index fund sells shares on a certain date to generate cash for dividends, does this likely lower the average price of the index or the whole market, or is the effect negligible? I usually consider dividends as another cash inflow and do not reinvest. If I choose the reinvest dividends option and sell shares when I need income, I have to pay tax on CG as well as on dividends. Either way, I got stuck.

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

Post by Random Poster » Sat Jan 12, 2019 9:51 pm

FoolMeOnce wrote:
Sat Jan 12, 2019 9:13 pm
But, still, the statement that launched this whole exchange stands: (underlying) shares are being sold without your input or control.
Respectfully, that is not what the statement said.

Rather, the statement was: “- Dividends are only "passive income" in the sense that they are your shares being sold off without your input or control.” (emphasis added).

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

Post by JustinR » Sat Jan 12, 2019 10:16 pm

Random Poster wrote:
Sat Jan 12, 2019 9:51 pm
FoolMeOnce wrote:
Sat Jan 12, 2019 9:13 pm
But, still, the statement that launched this whole exchange stands: (underlying) shares are being sold without your input or control.
Respectfully, that is not what the statement said.

Rather, the statement was: “- Dividends are only "passive income" in the sense that they are your shares being sold off without your input or control.” (emphasis added).
I was using an analogy to simplify the explanation of dividends reducing the value of a portfolio. You receive income in the same way as if someone else had sold your shares and the money is now in your bank account. Get it?

I've edited that statement to "like your shares being sold off" to make it clear that I'm talking figuratively and not literally. Shares being sold isn't even the point of that statement.
Last edited by JustinR on Sat Jan 12, 2019 10:36 pm, edited 1 time in total.

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

Post by abuss368 » Sat Jan 12, 2019 10:32 pm

That is awesome. I look at our total dividends at the end of the year. It is a nice feeling when it increases from the prior year. Almost psychological.
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Re: Around 43K in dividends last year - feel good about it ?

Post by abuss368 » Sat Jan 12, 2019 10:35 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.
:beer
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Re: Around 43K in dividends last year - feel good about it ?

Post by abuss368 » Sat Jan 12, 2019 10:36 pm

livesoft wrote:
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.
The poster should be complemented for achieving a level of possible financial independence.
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Re: Around 43K in dividends last year - feel good about it ?

Post by abuss368 » Sat Jan 12, 2019 10:38 pm

Toons wrote:
Fri Jan 11, 2019 1:12 pm
Enjoy your dividends and cap gains
Everyone should have such issues....feeling good :mrgreen:
Well said. :sharebeer
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Re: Around 43K in dividends last year - feel good about it ?

Post by cap'n crunch » Sat Jan 12, 2019 10:59 pm

Pigeye Brewster wrote:
Fri Jan 11, 2019 10:52 pm
Interesting thread...

Dividends are inherently neither a feel good nor feel bad item. Like any number of things, it depends on the investor's own personal situation. In tax-sheltered accounts, there is no substantive difference. As for taxable accounts, if the investor is living off the portfolio return, they are simply a convenient cash element of the total return. Given their tax treatment, it's no different than generating cash flow by selling shares. For others, who may not need the cashflow, they can be sort of a negative. But if you look at things on a tax-adjusted basis, maybe not since dividends and capital gains share the same tax rate.

Regardless of whether you need them or not, they're a fact of investing life. So relax, hold funds like VTSAX or VFIAX in your taxable account and know that you've got very tax-efficient funds even if you don't need or want the dividend income. :beer
wouldnt funds like Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX) or T. Rowe Price Tax-Efficient Equity Fund (PREFX ) be a better option for those that are trying to avoid dividends and capital gains?..if taxes was such a pressing issue wouldn't funds like those make better sense?

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

Post by triceratop » Sat Jan 12, 2019 11:41 pm

Random Poster wrote:
Sat Jan 12, 2019 9:51 pm
FoolMeOnce wrote:
Sat Jan 12, 2019 9:13 pm
But, still, the statement that launched this whole exchange stands: (underlying) shares are being sold without your input or control.
Respectfully, that is not what the statement said.

Rather, the statement was: “- Dividends are only "passive income" in the sense that they are your shares being sold off without your input or control.” (emphasis added).
And that is true. You were evidently confused because you posted:
I’m pretty sure that when I receive dividends from my Total Stock Market fund, none of my shares are being sold off.
This is a false statement. Your equity market shares implicitly held through your TSM fund are definitely being sold off.
FoolMeOnce wrote: I would think reinvestment gets you back to the same ownership of the underlying equities via the fund, but I don't feel like thinking about the math. But, still, the statement that launched this whole exchange stands: (underlying) shares are being sold without your input or control. You can buy them back, but you may have tax consequences you did not want.
This is correct. If your reinvestment occurs at NAV (as occurs with vanilla mutual fund shares but as does not occur with ETFs) then there is no net effect.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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

Post by triceratop » Sat Jan 12, 2019 11:51 pm

chinchin wrote:
Sat Jan 12, 2019 9:26 pm
FoolMeOnce wrote:
Sat Jan 12, 2019 9:13 pm
.

3) triceratop's point: When a fund issues a dividend, it sells shares of the assets it holds, and you thus own-through your ownership of the fund-fewer shares of the underlying equities that comprise the fund.

Unless it is a UIT like SPY which Triceratops noted.

The reinvesting/divesting thing is just to goose returns on the guess that markets will go up. Where does it say in the prospectus that they have to do it or it is even a strategy. Is it mentioned at all? In fact we have people assuming that big V does it, but is that a fact or an assumption?

If my ETF makes money from Securities Lending should I feel bad that I am profiting from short sellers?
It is a fact with the supporting evidence being that there is exceptionally little variance of the fund's return relative to the total return benchmark.

None of this has anything to do with securities lending or short selling.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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

Post by PhysicianOnFIRE » Sun Jan 13, 2019 2:01 pm

Cash is King wrote:
Sat Jan 12, 2019 12:58 pm
PhysicianOnFIRE wrote:
Fri Jan 11, 2019 11:26 pm



One common argument put forth by dividend enthusiasts is that you never have to sell shares when they're down. I've argued that you're effectively forced to sell shares when down whenever a dividend is paid in a down market. And if the company never lowers its dividend, you're effectively selling at a higher percentage when the NAV is lower.


I don't understand. Can you provide some examples?


Cheers.
The key is my use of the word "effectively."

If you have 100 shares of an asset that pays a $1 dividend each quarter, and that asset is worth $100 before paying the dividend, it's value is $99 after paying you the dividend. So you got $100 in cash and have 100 shares of an asset worth $99 ($9,900 worth). This ignores day-to-day and minute-to-minute fluctuations in net asset value, of course.

Compare that to owning 100 shares of an asset that pays no dividend. You can sell 1 share, have $100 in cash and be left with 99 shares each worth $100 ($9,900 worth). Note this is technically different than what happened above, but to me, effectively the same. The biggest difference is in this case, you have control over when you take that cash and how much you take, both of which may very well have tax ramifications.

Now if the market tanks and you have 100 shares of an asset worth $50, but the company never cuts its dividend, that $1 dividend will be 2% of the net asset value. If it's a quarterly dividend, you could be receiving 8% of your invested money back in the form of a dividend over a year. That's what I mean by effectively being forced to sell low.

:beer
-PoF

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

Post by Cash is King » Sun Jan 13, 2019 3:03 pm

PhysicianOnFIRE wrote:
Sun Jan 13, 2019 2:01 pm
Cash is King wrote:
Sat Jan 12, 2019 12:58 pm
PhysicianOnFIRE wrote:
Fri Jan 11, 2019 11:26 pm



One common argument put forth by dividend enthusiasts is that you never have to sell shares when they're down. I've argued that you're effectively forced to sell shares when down whenever a dividend is paid in a down market. And if the company never lowers its dividend, you're effectively selling at a higher percentage when the NAV is lower.


I don't understand. Can you provide some examples?


Cheers.
The key is my use of the word "effectively."

If you have 100 shares of an asset that pays a $1 dividend each quarter, and that asset is worth $100 before paying the dividend, it's value is $99 after paying you the dividend. So you got $100 in cash and have 100 shares of an asset worth $99 ($9,900 worth). This ignores day-to-day and minute-to-minute fluctuations in net asset value, of course.

Compare that to owning 100 shares of an asset that pays no dividend. You can sell 1 share, have $100 in cash and be left with 99 shares each worth $100 ($9,900 worth). Note this is technically different than what happened above, but to me, effectively the same. The biggest difference is in this case, you have control over when you take that cash and how much you take, both of which may very well have tax ramifications.

Now if the market tanks and you have 100 shares of an asset worth $50, but the company never cuts its dividend, that $1 dividend will be 2% of the net asset value. If it's a quarterly dividend, you could be receiving 8% of your invested money back in the form of a dividend over a year. That's what I mean by effectively being forced to sell low.

:beer
-PoF
Thanks for responding.
IMHO, I think you have to look at what actually happens opposed to effectively.
An individual stock that pays a dividend: Lets look at what happens If I own 100 shares of JNJ which pays an annual dividend of $3.60 or .90 per quarter. As of Friday's close those 100 shares are worth:100X$129.75=$12,975. On JNJs next ex-dividend date the stock price will be adjusted .90 cents prior to opening and the stock price could close down more than .90 cents or it may close up for the day. When the dividend is actual paid it should not have any impact on the share price. There could be other news that impacts the stock price on payment date but I will receive $90.00 and the value of my 100 shares may be more or less than $12,975 at the end of close depending on company news or general market noise.

I'm still confused when you say one would be effectively being forced to sell low. Maybe your referring to how an index fund works.
I'm not really sure but I do know it makes no sense if you are referring to an individual stock.


:sharebeer

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

Post by Broken Man 1999 » Sun Jan 13, 2019 3:49 pm

When did dividends go from being paid from retained earnings to anything else?

Just curious, as I did earn my finance degree in 1981.

Perhaps there has been an accounting change I have missed.

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

Post by Cash is King » Sun Jan 13, 2019 4:00 pm

I don't believe anyone said dividends were not paid from retained earnings.

Perhaps I missed that comment.

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

Post by Broken Man 1999 » Sun Jan 13, 2019 4:25 pm

Cash is King wrote:
Sun Jan 13, 2019 4:00 pm
I don't believe anyone said dividends were not paid from retained earnings.

Perhaps I missed that comment.
True. But there is a lot of nonsense in this thread, which seems to me to indicate some really don't know how dividends really work.

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

Post by PhysicianOnFIRE » Sun Jan 13, 2019 4:34 pm

Cash is King wrote:
Sun Jan 13, 2019 3:03 pm
PhysicianOnFIRE wrote:
Sun Jan 13, 2019 2:01 pm
Cash is King wrote:
Sat Jan 12, 2019 12:58 pm
PhysicianOnFIRE wrote:
Fri Jan 11, 2019 11:26 pm



One common argument put forth by dividend enthusiasts is that you never have to sell shares when they're down. I've argued that you're effectively forced to sell shares when down whenever a dividend is paid in a down market. And if the company never lowers its dividend, you're effectively selling at a higher percentage when the NAV is lower.


I don't understand. Can you provide some examples?


Cheers.
The key is my use of the word "effectively."

If you have 100 shares of an asset that pays a $1 dividend each quarter, and that asset is worth $100 before paying the dividend, it's value is $99 after paying you the dividend. So you got $100 in cash and have 100 shares of an asset worth $99 ($9,900 worth). This ignores day-to-day and minute-to-minute fluctuations in net asset value, of course.

Compare that to owning 100 shares of an asset that pays no dividend. You can sell 1 share, have $100 in cash and be left with 99 shares each worth $100 ($9,900 worth). Note this is technically different than what happened above, but to me, effectively the same. The biggest difference is in this case, you have control over when you take that cash and how much you take, both of which may very well have tax ramifications.

Now if the market tanks and you have 100 shares of an asset worth $50, but the company never cuts its dividend, that $1 dividend will be 2% of the net asset value. If it's a quarterly dividend, you could be receiving 8% of your invested money back in the form of a dividend over a year. That's what I mean by effectively being forced to sell low.

:beer
-PoF
Thanks for responding.
IMHO, I think you have to look at what actually happens opposed to effectively.
An individual stock that pays a dividend: Lets look at what happens If I own 100 shares of JNJ which pays an annual dividend of $3.60 or .90 per quarter. As of Friday's close those 100 shares are worth:100X$129.75=$12,975. On JNJs next ex-dividend date the stock price will be adjusted .90 cents prior to opening and the stock price could close down more than .90 cents or it may close up for the day. When the dividend is actual paid it should not have any impact on the share price. There could be other news that impacts the stock price on payment date but I will receive $90.00 and the value of my 100 shares may be more or less than $12,975 at the end of close depending on company news or general market noise.

I'm still confused when you say one would be effectively being forced to sell low. Maybe your referring to how an index fund works.
I'm not really sure but I do know it makes no sense if you are referring to an individual stock.


:sharebeer
Correct. The stock price is adjusted by the value of the dividend paid out, which makes perfect sense. The company is now worth that much less since that's what it paid out to shareholders from its balance sheet. The dividend does affect the share price at open whether or not we're talking about an individual stock or a mutual fund.

Saying that the dividend has no impact on share price because the net asset value will also go up or down (or not) by as much or more than the value of the dividend based on other news is like saying that selling one share has no effect because my remaining shares could go up or down (or not) by as much or more than the price of one share based on the news of the day.

:beer
-PoF

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

Post by Cash is King » Sun Jan 13, 2019 5:01 pm

PhysicianOnFIRE wrote:
Sun Jan 13, 2019 4:34 pm
Cash is King wrote:
Sun Jan 13, 2019 3:03 pm
PhysicianOnFIRE wrote:
Sun Jan 13, 2019 2:01 pm
Cash is King wrote:
Sat Jan 12, 2019 12:58 pm
PhysicianOnFIRE wrote:
Fri Jan 11, 2019 11:26 pm



One common argument put forth by dividend enthusiasts is that you never have to sell shares when they're down. I've argued that you're effectively forced to sell shares when down whenever a dividend is paid in a down market. And if the company never lowers its dividend, you're effectively selling at a higher percentage when the NAV is lower.


I don't understand. Can you provide some examples?


Cheers.
The key is my use of the word "effectively."

If you have 100 shares of an asset that pays a $1 dividend each quarter, and that asset is worth $100 before paying the dividend, it's value is $99 after paying you the dividend. So you got $100 in cash and have 100 shares of an asset worth $99 ($9,900 worth). This ignores day-to-day and minute-to-minute fluctuations in net asset value, of course.

Compare that to owning 100 shares of an asset that pays no dividend. You can sell 1 share, have $100 in cash and be left with 99 shares each worth $100 ($9,900 worth). Note this is technically different than what happened above, but to me, effectively the same. The biggest difference is in this case, you have control over when you take that cash and how much you take, both of which may very well have tax ramifications.

Now if the market tanks and you have 100 shares of an asset worth $50, but the company never cuts its dividend, that $1 dividend will be 2% of the net asset value. If it's a quarterly dividend, you could be receiving 8% of your invested money back in the form of a dividend over a year. That's what I mean by effectively being forced to sell low.

:beer
-PoF
Thanks for responding.
IMHO, I think you have to look at what actually happens opposed to effectively.
An individual stock that pays a dividend: Lets look at what happens If I own 100 shares of JNJ which pays an annual dividend of $3.60 or .90 per quarter. As of Friday's close those 100 shares are worth:100X$129.75=$12,975. On JNJs next ex-dividend date the stock price will be adjusted .90 cents prior to opening and the stock price could close down more than .90 cents or it may close up for the day. When the dividend is actual paid it should not have any impact on the share price. There could be other news that impacts the stock price on payment date but I will receive $90.00 and the value of my 100 shares may be more or less than $12,975 at the end of close depending on company news or general market noise.

I'm still confused when you say one would be effectively being forced to sell low. Maybe your referring to how an index fund works.
I'm not really sure but I do know it makes no sense if you are referring to an individual stock.


:sharebeer
Correct. The stock price is adjusted by the value of the dividend paid out, which makes perfect sense. The company is now worth that much less since that's what it paid out to shareholders from its balance sheet. The dividend does affect the share price at open whether or not we're talking about an individual stock or a mutual fund.

Saying that the dividend has no impact on share price because the net asset value will also go up or down (or not) by as much or more than the value of the dividend based on other news is like saying that selling one share has no effect because my remaining shares could go up or down (or not) by as much or more than the price of one share based on the news of the day.

:beer
-PoF
Correct in the fact that the dividend is paid out from retained earnings.
The dividend only effects the stock price on the open of the ex-dividend date.There are other things that can impact the stock price afterwards. Let's look at another example: PM (Phillip Morris International) on Friday, January 11th paid out to their shareholders a quarterly dividend of $1.14 per share. The stock closed on Friday up a $1.35 at $69.50.

Best,

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

Post by Pigeye Brewster » Mon Jan 14, 2019 6:12 pm

JustinR wrote:
Fri Jan 11, 2019 11:42 pm
Pigeye Brewster wrote:
Fri Jan 11, 2019 10:52 pm
Interesting thread...

Dividends are inherently neither a feel good nor feel bad item. Like any number of things, it depends on the investor's own personal situation. In tax-sheltered accounts, there is no substantive difference. As for taxable accounts, if the investor is living off the portfolio return, they are simply a convenient cash element of the total return. Given their tax treatment, it's no different than generating cash flow by selling shares.
Nope. Dividends are absolutely worse than selling shares yourself:

1. With dividends, you're taxed on the entire amount. When selling shares, you recover the principle so you're only taxed on the gain.

2. With dividends, some of it may not be qualified, which means some may be taxed at regular income rates instead of LTCG. When selling shares, all of it is taxed at LTCG rates.
My bad. It does indeed matter in taxable for the reasons you noted. Qualified can be managed to some extent by fund selection, though, e.g. 500 Index had 100% QDI for 2017.

Pigeye Brewster
Posts: 272
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Re: Around 43K in dividends last year - feel good about it ?

Post by Pigeye Brewster » Mon Jan 14, 2019 6:23 pm

cap'n crunch wrote:
Sat Jan 12, 2019 10:59 pm
Pigeye Brewster wrote:
Fri Jan 11, 2019 10:52 pm
Interesting thread...

Dividends are inherently neither a feel good nor feel bad item. Like any number of things, it depends on the investor's own personal situation. In tax-sheltered accounts, there is no substantive difference. As for taxable accounts, if the investor is living off the portfolio return, they are simply a convenient cash element of the total return. Given their tax treatment, it's no different than generating cash flow by selling shares. For others, who may not need the cashflow, they can be sort of a negative. But if you look at things on a tax-adjusted basis, maybe not since dividends and capital gains share the same tax rate.

Regardless of whether you need them or not, they're a fact of investing life. So relax, hold funds like VTSAX or VFIAX in your taxable account and know that you've got very tax-efficient funds even if you don't need or want the dividend income. :beer
wouldnt funds like Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX) or T. Rowe Price Tax-Efficient Equity Fund (PREFX ) be a better option for those that are trying to avoid dividends and capital gains?..if taxes was such a pressing issue wouldn't funds like those make better sense?
From Vanguard website:

VTCLX shows a dividend yield of 1.70%, had qualified dividends of 100% for 2017, and expense ratio of 0.09%. VFIAX yield is 1.92%, QDI of 100%, and expense ratio of 0.04%. Neither fund has a history of distributing capital gains. Different indices, Russell 1000 vs. S&P 500. Returns aren't that much different, depends on which time period you look at, with VFIAX slightly better for 5 years and VTCLX slightly better for 10 years.

politely
Posts: 4
Joined: Thu Jun 09, 2016 11:20 pm

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

Post by politely » Wed Jan 16, 2019 2:31 am

Without knowing the OP's actual situation (since it wasn't fully described or asked about above), but assuming OP's awareness of the considerations, my initial thought was that the OP should feel good about the dividends and feel bad about the loss in value.

Not sure why discussions about dividends tend to become so dogmatic. I think it depends on a host of variables, including the (a) investor's age, situation and goals, (b) actual/desired portfolio composition (eg, MF/ETF vs individual stocks, equity vs fixed income (and, taxable vs exempt)), (c) whether non-taxable/deferred buckets have been filled, and (d) ownership considerations.

It's true that taxable dividends in taxable accounts will be subject to tax, but there's nothing inherently wrong with that. Like most financial endeavors, tax is an important consideration, but it isn't the only one, or necessarily the most important. Tax considerations will vary depending on one's situation.

One silly example for discussion purposes. If the OP owned 7 shares of Berkshire Hathaway, currently at $295k per share or $2.06mm total (approx. value of OP's stated portfolio), and the OP depended on the portfolio to cover living expenses, would the OP prefer a recurring 2% annual dividend of approx. $41k (or $62k at 3%) or would the OP prefer to sell shares?

One consideration that I haven't seen mentioned very often is that if taking dividends is equivalent to reducing the investment stake, the converse in not taking dividends seems equivalent to increasing the stake in the investment by the amount of what-would-have-been-the-dividend. That may be ok in some situations, but not all. For example, in my portfolio I have shares in a public energy utility solely for the dividend. I don't expect it to ever be a ten-bagger, and I don't really want to increase my stake in the utility as a percentage of my portfolio, but I like the fairly steady income. Since I bought it specifically for the dividend income in my taxable account (because my deferred bucket was full), I don't like, but I do accept, that that I have to pay taxes on the dividends. And, to be clear, I like the utility's regional coverage. I would not like the utility to keep the dividends in an effort to expand across the country.

JustinR
Posts: 866
Joined: Tue Apr 27, 2010 11:43 pm

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

Post by JustinR » Wed Jan 16, 2019 6:59 am

politely wrote:
Wed Jan 16, 2019 2:31 am
Without knowing the OP's actual situation (since it wasn't fully described or asked about above), but assuming OP's awareness of the considerations, my initial thought was that the OP should feel good about the dividends and feel bad about the loss in value.

Not sure why discussions about dividends tend to become so dogmatic. I think it depends on a host of variables, including the (a) investor's age, situation and goals, (b) actual/desired portfolio composition (eg, MF/ETF vs individual stocks, equity vs fixed income (and, taxable vs exempt)), (c) whether non-taxable/deferred buckets have been filled, and (d) ownership considerations.

It's true that taxable dividends in taxable accounts will be subject to tax, but there's nothing inherently wrong with that. Like most financial endeavors, tax is an important consideration, but it isn't the only one, or necessarily the most important. Tax considerations will vary depending on one's situation.

One silly example for discussion purposes. If the OP owned 7 shares of Berkshire Hathaway, currently at $295k per share or $2.06mm total (approx. value of OP's stated portfolio), and the OP depended on the portfolio to cover living expenses, would the OP prefer a recurring 2% annual dividend of approx. $41k (or $62k at 3%) or would the OP prefer to sell shares?
We've already established that it's better to sell shares:

viewtopic.php?f=10&t=269321&start=100#p4315265

There's literally zero benefits to receiving a dividend.

Topic Author
skor99
Posts: 191
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Re: Around 43K in dividends last year - feel good about it ?

Post by skor99 » Wed Jan 16, 2019 8:11 am

How can one be sure that the company is using the unpaid dividend money wisely and not wasting on buybacks or wasting on execessive CEO compensation ? When dividends are distributed it is up to the shareholders to invest back or to make other use of that money.

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