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Actually most equity dividends in my experience are qualified dividends which are taxed at a 15% rate (could be going up to 20%?) so that is the lowest tax rate possible other than tax free muni income.
Actually, fumbling... If you are in the 15% bracket either because your income is simply below the level, or you've managed to put most of your investments into Roth accounts, then qualified dividend income in "taxable" accounts are free from taxation.
People that think dividends increase value are typically the same ones who think stock splits increase value. All it does is shift the numbers around and possibly let in some new investors at a lower price point. From an overall financial stand point, there is nothing gained from being paid a dividend that you couldn't have obtained by just selling off a similar percentage of your stock in the company. The only reason it would matter at all is you can't necessarily sell off 3% of your shares if you only one 1 share of a high price stock. Financially, it's the same.
The companies that have been paying dividends for decades and still going up in value? They would have gone up even more in value if they weren't reducing their share price every quarter. For an obvious example, look at the REITs. They typically stay in a very narrow range because of their dividends. If a company with a share price of $15 is paying $2.50 a year in dividends, there's no way it's share price will go up substantially. At the same time, if they didn't have to pay that out, they could have had their share price go up $2.50 a year.
Actually, fumbling... If you are in the 15% bracket either because your income is simply below the level, or you've managed to put most of your investments into Roth accounts, then qualified dividend income in "taxable" accounts are free from taxation.
Wow I didn't know that and thanks for the info even though I don't think I'll ever be in the 15% bracket since I never put money into Roths but that's good for people to know and better than any LT capital gain on total return investing.
People that think dividends increase value are typically the same ones who think stock splits increase value. All it does is shift the numbers around and possibly let in some new investors at a lower price point. From an overall financial stand point, there is nothing gained from being paid a dividend that you couldn't have obtained by just selling off a similar percentage of your stock in the company. The only reason it would matter at all is you can't necessarily sell off 3% of your shares if you only one 1 share of a high price stock. Financially, it's the same.
The companies that have been paying dividends for decades and still going up in value? They would have gone up even more in value if they weren't reducing their share price every quarter. For an obvious example, look at the REITs. They typically stay in a very narrow range because of their dividends. If a company with a share price of $15 is paying $2.50 a year in dividends, there's no way it's share price will go up substantially. At the same time, if they didn't have to pay that out, they could have had their share price go up $2.50 a year.
In theory yes but markets are going to take things wherever they go over a quarter. Sometimes they will retrace the payout and cover it ,sometimes they won't.
All that is important is the combination of the two which is your total return.
Your net worth couldn't care less how it is arrived at .
Studies show that the biggest bang for the buck will be in reinvesting dividends while spending down cash and bonds first giving stocks and reinvested dividends plenty of compounding time.
Spending dividends up front first cuts your bang for the buck over time as opposed to drawing your income stream from bonds and cash first and leaving higher compounding on the equities..
Last edited by mathjak107; 08-12-2014 at 04:18 AM..
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