Why no one created a etf of dividend free stocks

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
sharukh
Posts: 225
Joined: Mon Jun 20, 2016 10:19 am

Why no one created a etf of dividend free stocks

Post by sharukh » Sat Nov 09, 2019 7:03 am

Hi,

A theory question...

There are so many etf s in the market. But no etf which is designed to hold only dividend free stocks.

Is there no need for such etf for people, or there is too much complexity to provide such an etf ?

Thanks

samirol
Posts: 17
Joined: Mon Feb 19, 2018 8:35 pm

Re: Why no one created a etf of dividend free stocks

Post by samirol » Sat Nov 09, 2019 7:17 am

Mid cap growth (VOT) only has a .8% yield, this would probably be your closest option to reduce dividends while getting a relatively diversified passive investing fund

Non dividend paying stocks as a group have historically underperformed the overall market

Topic Author
sharukh
Posts: 225
Joined: Mon Jun 20, 2016 10:19 am

Re: Why no one created a etf of dividend free stocks

Post by sharukh » Sat Nov 09, 2019 7:28 am

samirol wrote:
Sat Nov 09, 2019 7:17 am
Mid cap growth (VOT) only has a .8% yield, this would probably be your closest option to reduce dividends while getting a relatively diversified passive investing fund

Non dividend paying stocks as a group have historically underperformed the overall market
Thank you for sharing this

AlohaJoe
Posts: 4857
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Why no one created a etf of dividend free stocks

Post by AlohaJoe » Sat Nov 09, 2019 8:33 am

sharukh wrote:
Sat Nov 09, 2019 7:03 am
There are so many etf s in the market. But no etf which is designed to hold only dividend free stocks.
People sometimes ask this on Bogleheads. They seem to imagine that there are hundreds, maybe thousands of no-dividend stocks. That's not really true, especially when you look at things on a market cap weighting. And why wouldn't you? Someone who asks for "the S&P 500 but without dividends" probably doesn't want "a small-cap growth fund". They want large cap stocks just without dividends.

A market cap weighted "no dividends" fund would just be: Google, Amazon, Facebook, and Berkshire Hathaway. That's it, really. Those 4 together make up 46% of the market cap of all "no dividend" stocks. The top 10 no dividends stocks make up 60% of the entire market cap. And the rest are just more tech stocks: Adobe, Salesforce, Netflix, Paypal -- I'd be shocked if their returns aren't massively correlated with Google, Amazon, and Facebook such that adding them provides little benefit.

Berkshire at #4 has a market cap of $500 billion. Adobe at #5 has a market cap of $140 billion. That's how steep the drop off is and why the first four dominate the holdings.

If you want a "no dividend" fund then just find some tech/FANG fund with ~10 stocks and then buy Berkshire separately. Because those are -- by market cap weighting -- the only companies with no dividends. There's no such thing as "big companies that don't pay dividends that aren't tech stocks", really.

bgf
Posts: 1079
Joined: Fri Nov 10, 2017 9:35 am

Re: Why no one created a etf of dividend free stocks

Post by bgf » Sat Nov 09, 2019 8:36 am

I own one other one that will not pay dividends, Markel (MKL).
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

Lee_WSP
Posts: 1170
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Why no one created a etf of dividend free stocks

Post by Lee_WSP » Sat Nov 09, 2019 9:25 am

What happens when that stock starts paying dividends? Seems like a not so smart or long lasting criteria to me.

HEDGEFUNDIE
Posts: 3560
Joined: Sun Oct 22, 2017 2:06 pm

Re: Why no one created a etf of dividend free stocks

Post by HEDGEFUNDIE » Sat Nov 09, 2019 9:30 am

Lee_WSP wrote:
Sat Nov 09, 2019 9:25 am
What happens when that stock starts paying dividends? Seems like a not so smart or long lasting criteria to me.
Then you take it out of the index. Stocks get added and subtracted out of indexes all the time.

HEDGEFUNDIE
Posts: 3560
Joined: Sun Oct 22, 2017 2:06 pm

Re: Why no one created a etf of dividend free stocks

Post by HEDGEFUNDIE » Sat Nov 09, 2019 9:33 am

AlohaJoe wrote:
Sat Nov 09, 2019 8:33 am
sharukh wrote:
Sat Nov 09, 2019 7:03 am
There are so many etf s in the market. But no etf which is designed to hold only dividend free stocks.
People sometimes ask this on Bogleheads. They seem to imagine that there are hundreds, maybe thousands of no-dividend stocks. That's not really true, especially when you look at things on a market cap weighting. And why wouldn't you? Someone who asks for "the S&P 500 but without dividends" probably doesn't want "a small-cap growth fund". They want large cap stocks just without dividends.

A market cap weighted "no dividends" fund would just be: Google, Amazon, Facebook, and Berkshire Hathaway. That's it, really. Those 4 together make up 46% of the market cap of all "no dividend" stocks. The top 10 no dividends stocks make up 60% of the entire market cap. And the rest are just more tech stocks: Adobe, Salesforce, Netflix, Paypal -- I'd be shocked if their returns aren't massively correlated with Google, Amazon, and Facebook such that adding them provides little benefit.

Berkshire at #4 has a market cap of $500 billion. Adobe at #5 has a market cap of $140 billion. That's how steep the drop off is and why the first four dominate the holdings.

If you want a "no dividend" fund then just find some tech/FANG fund with ~10 stocks and then buy Berkshire separately. Because those are -- by market cap weighting -- the only companies with no dividends. There's no such thing as "big companies that don't pay dividends that aren't tech stocks", really.
Ok fine. So why is there not a passive fund of those tech stocks + Berkshire? Plus all the small caps that don’t pay dividends.

The S&P 500 has tax cost of 0.5% at the top tax bracket.

If I was to guarantee you 0.5% outperformance on your investments as compared to the index you would laugh.

And yet this strategy is right there, plain to see for everyone, yet to be exploited.

MathIsMyWayr
Posts: 1007
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: Why no one created a etf of dividend free stocks

Post by MathIsMyWayr » Sat Nov 09, 2019 9:46 am

HEDGEFUNDIE wrote:
Sat Nov 09, 2019 9:30 am
Lee_WSP wrote:
Sat Nov 09, 2019 9:25 am
What happens when that stock starts paying dividends? Seems like a not so smart or long lasting criteria to me.
Then you take it out of the index. Stocks get added and subtracted out of indexes all the time.
There will be a massive capital gains distribution much more than all the savings from no dividends over the years.

User avatar
fredflinstone
Posts: 2163
Joined: Mon Mar 29, 2010 7:35 am
Location: Bedrock

Re: Why no one created a etf of dividend free stocks

Post by fredflinstone » Sat Nov 09, 2019 9:47 am

There are some people who would like to keep their taxable income to a minimum in order to be eligible for subsidized healthcare and other means-tested government programs. For these people, dividend-free and low-dividend stocks are an excellent choice.

HEDGEFUNDIE
Posts: 3560
Joined: Sun Oct 22, 2017 2:06 pm

Re: Why no one created a etf of dividend free stocks

Post by HEDGEFUNDIE » Sat Nov 09, 2019 9:52 am

MathIsMyWayr wrote:
Sat Nov 09, 2019 9:46 am
HEDGEFUNDIE wrote:
Sat Nov 09, 2019 9:30 am
Lee_WSP wrote:
Sat Nov 09, 2019 9:25 am
What happens when that stock starts paying dividends? Seems like a not so smart or long lasting criteria to me.
Then you take it out of the index. Stocks get added and subtracted out of indexes all the time.
There will be a massive capital gains distribution much more than all the savings from no dividends over the years.
Not with the “heartbeat” transactions that ETFs are (in)famous for.

a_movable_life
Posts: 117
Joined: Tue Dec 20, 2016 9:33 pm

Re: Why no one created a etf of dividend free stocks

Post by a_movable_life » Sat Nov 09, 2019 10:07 am

According to some other threads around here, Schwab will be allowing fractional stock sales, and then we have the no commission in many cases. You could "Roll your own" if most of the weighting is in 5-10 stocks.

I don't think I am going to be selling and taking capital gains on my VOO shares to get there though.

Topic Author
sharukh
Posts: 225
Joined: Mon Jun 20, 2016 10:19 am

Re: Why no one created a etf of dividend free stocks

Post by sharukh » Sat Nov 09, 2019 10:20 am

AlohaJoe wrote:
Sat Nov 09, 2019 8:33 am
sharukh wrote:
Sat Nov 09, 2019 7:03 am
There are so many etf s in the market. But no etf which is designed to hold only dividend free stocks.
People sometimes ask this on Bogleheads. They seem to imagine that there are hundreds, maybe thousands of no-dividend stocks. That's not really true, especially when you look at things on a market cap weighting. And why wouldn't you? Someone who asks for "the S&P 500 but without dividends" probably doesn't want "a small-cap growth fund". They want large cap stocks just without dividends.

A market cap weighted "no dividends" fund would just be: Google, Amazon, Facebook, and Berkshire Hathaway. That's it, really. Those 4 together make up 46% of the market cap of all "no dividend" stocks. The top 10 no dividends stocks make up 60% of the entire market cap. And the rest are just more tech stocks: Adobe, Salesforce, Netflix, Paypal -- I'd be shocked if their returns aren't massively correlated with Google, Amazon, and Facebook such that adding them provides little benefit.

Berkshire at #4 has a market cap of $500 billion. Adobe at #5 has a market cap of $140 billion. That's how steep the drop off is and why the first four dominate the holdings.

If you want a "no dividend" fund then just find some tech/FANG fund with ~10 stocks and then buy Berkshire separately. Because those are -- by market cap weighting -- the only companies with no dividends. There's no such thing as "big companies that don't pay dividends that aren't tech stocks", really.
Very good details. Hand rolling this for small account is pretty easy. Thank you

AlohaJoe
Posts: 4857
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Why no one created a etf of dividend free stocks

Post by AlohaJoe » Sat Nov 09, 2019 10:34 am

HEDGEFUNDIE wrote:
Sat Nov 09, 2019 9:33 am
Ok fine. So why is there not a passive fund of those tech stocks + Berkshire? Plus all the small caps that don’t pay dividends.
The only way small caps mean anything is if you move away from market cap weighting. Which is a thing that some people do but the further you get from a vanilla S&P 500 fund the bigger the question of "what exactly is this thing?" becomes. If you build an equal-weighted fund of non-dividend paying stocks that isn't just a "S&P 500 minus the tax drag of dividends fund". It is a unique, totally different thing that needs to be considered on its own merits.
The S&P 500 has tax cost of 0.5% at the top tax bracket.

If I was to guarantee you 0.5% outperformance on your investments as compared to the index you would laugh.
But this is a non sequitor. A fund of "tech stocks + Berkshire" isn't comparable to the S&P 500. The idea that you can replace a high-dividend stock with a low-dividend stock without changing the overall composition of returns seems unintuitive on the surface and probably why most plan sponsors haven't looked into the strategy further.

Beyond that I'd say there are 2 reasons there isn't a fund of "tech stocks + Berkshire".

1. The market for such a fund is tiny. You're basically looking at, what, people in the highest tax bracket who want to invest taxable funds. Is that enough to build a $50+ million fund? Maybe? But remember, the ETF sponsor needs to offer it at an extremely low ER, otherwise all the tax advantage is lost. FNG, the ETF that tried something very similar to this strategy, had an ER of 0.86% and shutdown after 11 months because it couldn't raise any assets.

What's more, for someone who accepts the logic of a "tech stocks + Berkshire" fund....they can just go buy an existing tech fund and get 80% of the benefit right now. So the incremental benefit of launching a new fund that is "just like FNG or MOAT or IYW but also with Berkshire" is muted.

2. The recent paper from AQR, "Should Taxable Investors Shun Dividends?" find that, no, investors shouldn't shun dividends.
We find that dividend avoidance generally reduces implementation efficiency, thus lowering expected pre-tax returns. [...] Importantly, dividend avoidance detracts from the ability to manage capital gains. All things considered, the tax benefit of lowering the dividend yield is not enough to compensate for the associated increase in capital gains taxes and decrease in expected pre-tax returns.

User avatar
nedsaid
Posts: 12668
Joined: Fri Nov 23, 2012 12:33 pm

Re: Why no one created a etf of dividend free stocks

Post by nedsaid » Sat Nov 09, 2019 10:37 am

This is an interesting thread after being bashed so hard in the dividend wars. It seems like I have expressed a preference for dividends to then be met with insinuations that I didn't quite have it all together upstairs. Dividends don't matter, I have been told. For the record, I don't see dividends as magic or as "free money" but I do enjoy the income stream. Dividends are harder to fake than earnings. As I get older, income becomes more important to me. Income seemed to be important to the late John Bogle as he instructed us how to reach for yield a bit but not too much. Also have been told that all you need is a portfolio of non-dividend stocks and your tax worries are over, that is if the stocks are held in a taxable account. It sounds like the task of building a non-dividend payer index is harder than it seems. The thread so far has provided a bit of vindication.
A fool and his money are good for business.

User avatar
CyclingDuo
Posts: 2642
Joined: Fri Jan 06, 2017 9:07 am

Re: Why no one created a etf of dividend free stocks

Post by CyclingDuo » Sat Nov 09, 2019 11:11 am

sharukh wrote:
Sat Nov 09, 2019 7:03 am
Hi,

A theory question...

There are so many etf s in the market. But no etf which is designed to hold only dividend free stocks.

Is there no need for such etf for people, or there is too much complexity to provide such an etf ?

Thanks
You can create your own DIY fund for free at M1 Finance with a pie made up of non-all dividend paying stocks. As mentioned upthread, if sticking with the S&P 500, it would be dominated by the largest non-dividend paying companies if you were doing it cap weighted: Amazon, Google, Berkshire, Facebook, Salesforce.com, Berkshire, Biogen, Monster Beverage, Verisign, Adobe, Alibaba, Waters Corp, AMD, Boston Scientific, Chipotle, Dish Network, eTrade, eBay, Netflix, Micron, PayPal, etc... .

If you wanted an equal weighted non-dividend paying stock fund, there are 83 - 84 non-dividend paying stocks in the S&P 500 which if you put them all in one pie at M1, would give you an equal weighted DIY fund that may or may not meet your goals.

https://www.dividend.com/investor-resou ... dividends/
"Everywhere is within walking distance if you have the time." ~ Steven Wright

HEDGEFUNDIE
Posts: 3560
Joined: Sun Oct 22, 2017 2:06 pm

Re: Why no one created a etf of dividend free stocks

Post by HEDGEFUNDIE » Sat Nov 09, 2019 11:42 am

AlohaJoe wrote:
Sat Nov 09, 2019 10:34 am
HEDGEFUNDIE wrote:
Sat Nov 09, 2019 9:33 am
Ok fine. So why is there not a passive fund of those tech stocks + Berkshire? Plus all the small caps that don’t pay dividends.
The only way small caps mean anything is if you move away from market cap weighting. Which is a thing that some people do but the further you get from a vanilla S&P 500 fund the bigger the question of "what exactly is this thing?" becomes. If you build an equal-weighted fund of non-dividend paying stocks that isn't just a "S&P 500 minus the tax drag of dividends fund". It is a unique, totally different thing that needs to be considered on its own merits.
The S&P 500 has tax cost of 0.5% at the top tax bracket.

If I was to guarantee you 0.5% outperformance on your investments as compared to the index you would laugh.
But this is a non sequitor. A fund of "tech stocks + Berkshire" isn't comparable to the S&P 500. The idea that you can replace a high-dividend stock with a low-dividend stock without changing the overall composition of returns seems unintuitive on the surface and probably why most plan sponsors haven't looked into the strategy further.

Beyond that I'd say there are 2 reasons there isn't a fund of "tech stocks + Berkshire".

1. The market for such a fund is tiny. You're basically looking at, what, people in the highest tax bracket who want to invest taxable funds. Is that enough to build a $50+ million fund? Maybe? But remember, the ETF sponsor needs to offer it at an extremely low ER, otherwise all the tax advantage is lost. FNG, the ETF that tried something very similar to this strategy, had an ER of 0.86% and shutdown after 11 months because it couldn't raise any assets.

What's more, for someone who accepts the logic of a "tech stocks + Berkshire" fund....they can just go buy an existing tech fund and get 80% of the benefit right now. So the incremental benefit of launching a new fund that is "just like FNG or MOAT or IYW but also with Berkshire" is muted.

2. The recent paper from AQR, "Should Taxable Investors Shun Dividends?" find that, no, investors shouldn't shun dividends.
We find that dividend avoidance generally reduces implementation efficiency, thus lowering expected pre-tax returns. [...] Importantly, dividend avoidance detracts from the ability to manage capital gains. All things considered, the tax benefit of lowering the dividend yield is not enough to compensate for the associated increase in capital gains taxes and decrease in expected pre-tax returns.
We are talking past each other.

I am not suggesting deviating from market cap weighting.

Nor am I suggesting avoiding dividend paying stocks.

Here is all I am suggesting:

HEDGEFUNDIE Asset Management No-Dividend US Stock Market ETF
HEDGEFUNDIE Asset Management Dividend Payer US Stock Market ETF

The latter for tax advantaged accounts, the former for taxable accounts. There would be a recommended ratio to hold them in to ensure Total Stock market cap weighting across the two.

Btw, the 0.5% cost is assuming highest Fed bracket only. Most Americans pay state income tax too. So most people in 22%+ Fed bracket would benefit.

aristotelian
Posts: 6382
Joined: Wed Jan 11, 2017 8:05 pm

Re: Why no one created a etf of dividend free stocks

Post by aristotelian » Sat Nov 09, 2019 11:55 am

OP, you are welcome to invest in my Ultimate In Tax Efficiency Pie through M1 Finance. It has a Dividend Yield of .075%. I already own some GOOG and BRKB so I excluded those. https://m1.finance/idSUth3Uy

Dottie57
Posts: 7001
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Why no one created a etf of dividend free stocks

Post by Dottie57 » Sat Nov 09, 2019 12:16 pm

fredflinstone wrote:
Sat Nov 09, 2019 9:47 am
There are some people who would like to keep their taxable income to a minimum in order to be eligible for subsidized healthcare and other means-tested government programs. For these people, dividend-free and low-dividend stocks are an excellent choice.
How big would that pool f people be? I really have no idea.

I do know that as a retiree I want the dividends and cap gains from my funds. I want to spend them.

Topic Author
sharukh
Posts: 225
Joined: Mon Jun 20, 2016 10:19 am

Re: Why no one created a etf of dividend free stocks

Post by sharukh » Sat Nov 09, 2019 2:09 pm

CyclingDuo wrote:
Sat Nov 09, 2019 11:11 am
sharukh wrote:
Sat Nov 09, 2019 7:03 am
Hi,

A theory question...

There are so many etf s in the market. But no etf which is designed to hold only dividend free stocks.

Is there no need for such etf for people, or there is too much complexity to provide such an etf ?

Thanks
You can create your own DIY fund for free at M1 Finance with a pie made up of non-all dividend paying stocks. As mentioned upthread, if sticking with the S&P 500, it would be dominated by the largest non-dividend paying companies if you were doing it cap weighted: Amazon, Google, Berkshire, Facebook, Salesforce.com, Berkshire, Biogen, Monster Beverage, Verisign, Adobe, Alibaba, Waters Corp, AMD, Boston Scientific, Chipotle, Dish Network, eTrade, eBay, Netflix, Micron, PayPal, etc... .

If you wanted an equal weighted non-dividend paying stock fund, there are 83 - 84 non-dividend paying stocks in the S&P 500 which if you put them all in one pie at M1, would give you an equal weighted DIY fund that may or may not meet your goals.

https://www.dividend.com/investor-resou ... dividends/
Hi, How did you find market weight sorted non dividend paying companies list. thank you

Scooter57
Posts: 1040
Joined: Thu Jan 24, 2013 9:20 am

Re: Why no one created a etf of dividend free stocks

Post by Scooter57 » Sat Nov 09, 2019 4:24 pm

Vanguard did offer Tax Advantage accounts a while back that were designed specifically to minimize taxable distributions. Unfortunately, the one I owned changed its charter and became less tax friendly. This required me to sell the fund, which is the last thing you want to do in a Taxable account. So I would no longer advise buying their remaining Tax Advantaged funds. At least with Vanguard Total Stock Market I can be pretty sure they aren't going to change what they invest in, though they are quite capable of changing their reference index. International funds, are far more problematic because they do have a history of changing what THEY invest in, as happened when some funds decided that South Korea and China, which had been the engines driving Emerging Markets funds were no longer Emerging.

Mid Cap and Small Cap Growth stocks typically do not pay much in the way of dividends, so you would avoid dividends with a fund like the Vanguard MidCap Growth Fund. But you are taking more risk.

The reason people like dividend stocks, despite all the put-downs they get on this forum is because companies that have enough money to pay dividends are usually more profitable and stable than those that don't. However, that "usually" has to be qualified by the note that in this era of ridiculously cheap money, a lot of unstable and not very profitable companies have borrowed heavily to fund dividends, playing on investors' need for income and inability to understand what they are actually investing in.

User avatar
CyclingDuo
Posts: 2642
Joined: Fri Jan 06, 2017 9:07 am

Re: Why no one created a etf of dividend free stocks

Post by CyclingDuo » Sat Nov 09, 2019 6:22 pm

sharukh wrote:
Sat Nov 09, 2019 2:09 pm
CyclingDuo wrote:
Sat Nov 09, 2019 11:11 am
sharukh wrote:
Sat Nov 09, 2019 7:03 am
Hi,

A theory question...

There are so many etf s in the market. But no etf which is designed to hold only dividend free stocks.

Is there no need for such etf for people, or there is too much complexity to provide such an etf ?

Thanks
You can create your own DIY fund for free at M1 Finance with a pie made up of non-all dividend paying stocks. As mentioned upthread, if sticking with the S&P 500, it would be dominated by the largest non-dividend paying companies if you were doing it cap weighted: Amazon, Google, Berkshire, Facebook, Salesforce.com, Berkshire, Biogen, Monster Beverage, Verisign, Adobe, Alibaba, Waters Corp, AMD, Boston Scientific, Chipotle, Dish Network, eTrade, eBay, Netflix, Micron, PayPal, etc... .

If you wanted an equal weighted non-dividend paying stock fund, there are 83 - 84 non-dividend paying stocks in the S&P 500 which if you put them all in one pie at M1, would give you an equal weighted DIY fund that may or may not meet your goals.

https://www.dividend.com/investor-resou ... dividends/
Hi, How did you find market weight sorted non dividend paying companies list. thank you
The link.

If creating your own..

That would be easy. Just look up the market cap of each of the 83-84 companies. Add them all together. Divide each single company’s market cap into the total market cap for all 83-84 combined to get the percentage that each position would represent in your DIY fund.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Topic Author
sharukh
Posts: 225
Joined: Mon Jun 20, 2016 10:19 am

Re: Why no one created a etf of dividend free stocks

Post by sharukh » Sat Nov 09, 2019 8:37 pm

CyclingDuo wrote:
Sat Nov 09, 2019 6:22 pm
sharukh wrote:
Sat Nov 09, 2019 2:09 pm
CyclingDuo wrote:
Sat Nov 09, 2019 11:11 am
sharukh wrote:
Sat Nov 09, 2019 7:03 am
Hi,

A theory question...

There are so many etf s in the market. But no etf which is designed to hold only dividend free stocks.

Is there no need for such etf for people, or there is too much complexity to provide such an etf ?

Thanks
You can create your own DIY fund for free at M1 Finance with a pie made up of non-all dividend paying stocks. As mentioned upthread, if sticking with the S&P 500, it would be dominated by the largest non-dividend paying companies if you were doing it cap weighted: Amazon, Google, Berkshire, Facebook, Salesforce.com, Berkshire, Biogen, Monster Beverage, Verisign, Adobe, Alibaba, Waters Corp, AMD, Boston Scientific, Chipotle, Dish Network, eTrade, eBay, Netflix, Micron, PayPal, etc... .

If you wanted an equal weighted non-dividend paying stock fund, there are 83 - 84 non-dividend paying stocks in the S&P 500 which if you put them all in one pie at M1, would give you an equal weighted DIY fund that may or may not meet your goals.

https://www.dividend.com/investor-resou ... dividends/
Hi, How did you find market weight sorted non dividend paying companies list. thank you
The link.

If creating your own..

That would be easy. Just look up the market cap of each of the 83-84 companies. Add them all together. Divide each single company’s market cap into the total market cap for all 83-84 combined to get the percentage that each position would represent in your DIY fund.
Thank you.

Topic Author
sharukh
Posts: 225
Joined: Mon Jun 20, 2016 10:19 am

Re: Why no one created a etf of dividend free stocks

Post by sharukh » Sat Nov 09, 2019 8:37 pm

bgf wrote:
Sat Nov 09, 2019 8:36 am
I own one other one that will not pay dividends, Markel (MKL).
I found one of your old post that has good links of dataroma
viewtopic.php?t=243386#p3816561

http://www.dataroma.com/m/holdings.php?m=BRK

berkshire's public equity holdings as of Q4 2017.

of course, berkshire is much much more now than its public equities.

for comparison, here are all the public equities held by Markel, and selected by Tom Gayner, who has outpaced the sp500 for i think like 20 years running now. Markel is very similar to Berkshire. i own both.

http://www.dataroma.com/m/holdings.php?m=MKL

User avatar
LiveSimple
Posts: 1387
Joined: Thu Jan 03, 2013 7:55 am

Re: Why no one created a etf of dividend free stocks

Post by LiveSimple » Sat Nov 09, 2019 8:41 pm

samirol wrote:
Sat Nov 09, 2019 7:17 am
Mid cap growth (VOT) only has a .8% yield, this would probably be your closest option to reduce dividends while getting a relatively diversified passive investing fund

Non dividend paying stocks as a group have historically underperformed the overall market
Try MGV, Mega Cap Growth as well, at 0.7% dividends...or combine both ...

illumination
Posts: 237
Joined: Tue Apr 02, 2019 6:13 pm

Re: Why no one created a etf of dividend free stocks

Post by illumination » Sat Nov 09, 2019 8:58 pm

Although it's not something I would want, It's a good idea for an ETF considering all the other random ones you come across.

I do think though you would be hurting total return by excluding companies that pay any dividend. In which case, I would rather pay the tax.

Could an ETF be structured where they own dividend paying companies but don't pay a dividend?

I know Berkshire is a stock, but just about everything they own pays a dividend, yet Berkshire never pay a dividend and it just increases the total value of Berkshire. Could an ETF be structured the same way?

AlohaJoe
Posts: 4857
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Why no one created a etf of dividend free stocks

Post by AlohaJoe » Sat Nov 09, 2019 9:00 pm

illumination wrote:
Sat Nov 09, 2019 8:58 pm
Could an ETF be structured where they own dividend paying companies but don't pay a dividend?
No, that's against the law. ETFs and mutual funds in the US are required to distribute dividends at least once a year.

Berkshire isn't an ETF or a mutual fund so they can do whatever they want.

babystep
Posts: 30
Joined: Tue Apr 09, 2019 9:44 am

Re: Why no one created a etf of dividend free stocks

Post by babystep » Sun Nov 10, 2019 2:18 am

HEDGEFUNDIE wrote:
Sat Nov 09, 2019 11:42 am
AlohaJoe wrote:
Sat Nov 09, 2019 10:34 am
HEDGEFUNDIE wrote:
Sat Nov 09, 2019 9:33 am
Ok fine. So why is there not a passive fund of those tech stocks + Berkshire? Plus all the small caps that don’t pay dividends.
The only way small caps mean anything is if you move away from market cap weighting. Which is a thing that some people do but the further you get from a vanilla S&P 500 fund the bigger the question of "what exactly is this thing?" becomes. If you build an equal-weighted fund of non-dividend paying stocks that isn't just a "S&P 500 minus the tax drag of dividends fund". It is a unique, totally different thing that needs to be considered on its own merits.
The S&P 500 has tax cost of 0.5% at the top tax bracket.

If I was to guarantee you 0.5% outperformance on your investments as compared to the index you would laugh.
But this is a non sequitor. A fund of "tech stocks + Berkshire" isn't comparable to the S&P 500. The idea that you can replace a high-dividend stock with a low-dividend stock without changing the overall composition of returns seems unintuitive on the surface and probably why most plan sponsors haven't looked into the strategy further.

Beyond that I'd say there are 2 reasons there isn't a fund of "tech stocks + Berkshire".

1. The market for such a fund is tiny. You're basically looking at, what, people in the highest tax bracket who want to invest taxable funds. Is that enough to build a $50+ million fund? Maybe? But remember, the ETF sponsor needs to offer it at an extremely low ER, otherwise all the tax advantage is lost. FNG, the ETF that tried something very similar to this strategy, had an ER of 0.86% and shutdown after 11 months because it couldn't raise any assets.

What's more, for someone who accepts the logic of a "tech stocks + Berkshire" fund....they can just go buy an existing tech fund and get 80% of the benefit right now. So the incremental benefit of launching a new fund that is "just like FNG or MOAT or IYW but also with Berkshire" is muted.

2. The recent paper from AQR, "Should Taxable Investors Shun Dividends?" find that, no, investors shouldn't shun dividends.
We find that dividend avoidance generally reduces implementation efficiency, thus lowering expected pre-tax returns. [...] Importantly, dividend avoidance detracts from the ability to manage capital gains. All things considered, the tax benefit of lowering the dividend yield is not enough to compensate for the associated increase in capital gains taxes and decrease in expected pre-tax returns.
We are talking past each other.

I am not suggesting deviating from market cap weighting.

Nor am I suggesting avoiding dividend paying stocks.

Here is all I am suggesting:

HEDGEFUNDIE Asset Management No-Dividend US Stock Market ETF
HEDGEFUNDIE Asset Management Dividend Payer US Stock Market ETF

The latter for tax advantaged accounts, the former for taxable accounts. There would be a recommended ratio to hold them in to ensure Total Stock market cap weighting across the two.

Btw, the 0.5% cost is assuming highest Fed bracket only. Most Americans pay state income tax too. So most people in 22%+ Fed bracket would benefit.
I was looking for the same few months ago. It is logical extension of bonds go to tax differed and stocks go to taxable.

This thread has a suggestion of split by growth and value but too complex for me.
viewtopic.php?t=249844

I was also thinking that why no one has done the split like above. May be there is and I don't know. I would assume that it should easy with the software if single brokerage was managing all 3 accounts: taxable, 401k and roth ira accounts. One easy to use software interface for the end-user to pick the AA based on US, International and Bond. As the money being contributed to 3 accounts then it just buys the correct ETFs on its own.

One potential reason that I couldn't understand was what happens when non-dividend payer becomes a huge dividend payer e.g Apple.
I wondered if that might happen with many companies starting out as growth/no-dividend and then become value/dividend companies ?

Do you know any other way one could do it ?

User avatar
whodidntante
Posts: 6569
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Why no one created a etf of dividend free stocks

Post by whodidntante » Sun Nov 10, 2019 4:16 am

CyclingDuo wrote:
Sat Nov 09, 2019 6:22 pm
sharukh wrote:
Sat Nov 09, 2019 2:09 pm
Hi, How did you find market weight sorted non dividend paying companies list. thank you
The link.

If creating your own..

That would be easy. Just look up the market cap of each of the 83-84 companies. Add them all together. Divide each single company’s market cap into the total market cap for all 83-84 combined to get the percentage that each position would represent in your DIY fund.
Or one could realize that there is nothing magical about float weighting and either equal weight or weight based on blind typing.

User avatar
nisiprius
Advisory Board
Posts: 39314
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Why no one created a etf of dividend free stocks

Post by nisiprius » Sun Nov 10, 2019 10:42 am

At the BH annual meeting, Mark Brancato, head of Vanguard's Portfolio Review Department, presented a chart showing the process Vanguard uses to decide if a new product is needed to serve Vanguard's mission "to give investors the best chance for investment success."

Image

That wasn't it, but it was sort of like that.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Scooter57
Posts: 1040
Joined: Thu Jan 24, 2013 9:20 am

Re: Why no one created a etf of dividend free stocks

Post by Scooter57 » Sun Nov 10, 2019 3:59 pm

@nisiprius That chart sums up exactly why after 31years with Vanguard I am considering moving my assets elsewhere. They have lost the focus on simplicity that made them so valuable.

User avatar
dmcmahon
Posts: 1929
Joined: Fri Mar 21, 2008 10:29 pm

Re: Why no one created a etf of dividend free stocks

Post by dmcmahon » Sun Nov 10, 2019 7:30 pm

AlohaJoe wrote:
Sat Nov 09, 2019 9:00 pm
illumination wrote:
Sat Nov 09, 2019 8:58 pm
Could an ETF be structured where they own dividend paying companies but don't pay a dividend?
No, that's against the law. ETFs and mutual funds in the US are required to distribute dividends at least once a year.

Berkshire isn't an ETF or a mutual fund so they can do whatever they want.
Yes they can. However, they have to pay corporate income taxes, so there’s no magic box whereby you can “hide” the dividends from taxes by following a similar strategy.

I suppose C companies themselves could start offering share classes that didn’t pay dividends. The earnings, if any, would still be taxed, but at least you’d only pay one level of tax instead of two, at least until you sold the shares and realized the gains.

babystep
Posts: 30
Joined: Tue Apr 09, 2019 9:44 am

Re: Why no one created a etf of dividend free stocks

Post by babystep » Sun Nov 10, 2019 9:34 pm

dmcmahon wrote:
Sun Nov 10, 2019 7:30 pm
AlohaJoe wrote:
Sat Nov 09, 2019 9:00 pm
illumination wrote:
Sat Nov 09, 2019 8:58 pm
Could an ETF be structured where they own dividend paying companies but don't pay a dividend?
No, that's against the law. ETFs and mutual funds in the US are required to distribute dividends at least once a year.

Berkshire isn't an ETF or a mutual fund so they can do whatever they want.
Yes they can. However, they have to pay corporate income taxes, so there’s no magic box whereby you can “hide” the dividends from taxes by following a similar strategy.

I suppose C companies themselves could start offering share classes that didn’t pay dividends. The earnings, if any, would still be taxed, but at least you’d only pay one level of tax instead of two, at least until you sold the shares and realized the gains.
dmcmahon,
Thank you so much for pointing this out. I had wondered that if someone holding the Berkshire stock then could they completely avoid the dividend tax. Does Berkshire pay corporate tax rate of 21% on the dividend received or something else ?

User avatar
CyclingDuo
Posts: 2642
Joined: Fri Jan 06, 2017 9:07 am

Re: Why no one created a etf of dividend free stocks

Post by CyclingDuo » Tue Nov 12, 2019 2:03 pm

whodidntante wrote:
Sun Nov 10, 2019 4:16 am
CyclingDuo wrote:
Sat Nov 09, 2019 6:22 pm
sharukh wrote:
Sat Nov 09, 2019 2:09 pm
Hi, How did you find market weight sorted non dividend paying companies list. thank you
The link.

If creating your own..

That would be easy. Just look up the market cap of each of the 83-84 companies. Add them all together. Divide each single company’s market cap into the total market cap for all 83-84 combined to get the percentage that each position would represent in your DIY fund.
Or one could realize that there is nothing magical about float weighting and either equal weight or weight based on blind typing.
Right. I didn't mean to imply anything magical. I was just going with the theme mentioned upthread about how the S&P 500 and returns are dominated by the bouyant ones (those that tend to float to the top with their mega-cap weighting). You could easily do a equal weighted DIY non-dividend paying pie at M1 - or even a blind typing (random) one.

My one "stock pie" at M1 is more akin to a hybrid of equal weighting and randomly selected (although I did choose from all eleven sectors - which was not done blindly or randomly). My other two pies are the three fund portfolio and the Merriman Ultimate Buy & Hold pie.

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright

User avatar
aj76er
Posts: 703
Joined: Tue Dec 01, 2015 11:34 pm
Location: Portland, OR

Re: Why no one created a etf of dividend free stocks

Post by aj76er » Tue Nov 12, 2019 7:43 pm

aristotelian wrote:
Sat Nov 09, 2019 11:55 am
OP, you are welcome to invest in my Ultimate In Tax Efficiency Pie through M1 Finance. It has a Dividend Yield of .075%. I already own some GOOG and BRKB so I excluded those. https://m1.finance/idSUth3Uy
This is really interesting. Are these companies held at approximate market weights? If so, how often do you need to rebalance? And how much tax-drag is caused by rebalancing?
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

aristotelian
Posts: 6382
Joined: Wed Jan 11, 2017 8:05 pm

Re: Why no one created a etf of dividend free stocks

Post by aristotelian » Tue Nov 12, 2019 8:20 pm

aj76er wrote:
Tue Nov 12, 2019 7:43 pm
aristotelian wrote:
Sat Nov 09, 2019 11:55 am
OP, you are welcome to invest in my Ultimate In Tax Efficiency Pie through M1 Finance. It has a Dividend Yield of .075%. I already own some GOOG and BRKB so I excluded those. https://m1.finance/idSUth3Uy
This is really interesting. Are these companies held at approximate market weights? If so, how often do you need to rebalance? And how much tax-drag is caused by rebalancing?
If I did true market weight AMZN and the other megacaps would have been massively overweight relative to the others beyond my comfort level. I basically started with market weight and then bumped up the smaller companies, in effect splitting the difference between market weight and equal weight. Plus I made a few random picks here and there like SPOT instead of NFLX. My policy is buy and hold except for tax loss harvesting, rebalance using new money. I just did this as an experiment with a few hundred bucks but I will be adding some play money to see whether the tax efficiencies are worth the volatility. Once you set your allocations, it really becomes mindless, very close to contributing to your own mutual fund, much more so than buying stocks through a traditional brokerage.

Post Reply