Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev Thread | Next Thread
Author: Larsso Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121114  
Subject: Prefered Stock with 15% taxable dividends Date: 6/11/2003 1:13 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
From what I understand, a lot of the prefered stocks outstanding will not be eligible for the 15% tax treatment. Does anyone know of a way to determine which preferreds are eligible, or if there are any readily accessible lists that highlight eligible preferreds?
Print the post Back To Top
Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 65783 of 121114
Subject: Re: Prefered Stock with 15% taxable dividends Date: 6/11/2003 1:44 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
From what I understand, a lot of the prefered stocks outstanding will not be eligible for the 15% tax treatment. Does anyone know of a way to determine which preferreds are eligible, or if there are any readily accessible lists that highlight eligible preferreds?

I'm not sure this is correct. As long as the amount paid in preferred dividends is not deducted in determining the taxable income of the corporation, it should still qualify for the reduced tax rate. Your best source of information may be the investor relations office of the company whose preferred stock you are interested in.

Ira

Print the post Back To Top
Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 65785 of 121114
Subject: Re: Prefered Stock with 15% taxable dividends Date: 6/11/2003 5:51 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
<As long as the amount paid in preferred dividends is not deducted in determining the taxable income of the corporation, it should still qualify for the reduced tax rate.>


This is true, but it is also my understanding that most will not qualify. IIRC, REIT preferreds and any with the word Trust in their title will not qualify. One of the reasons many companies go the route of using preferreds is that it does provide them with a tax deduction on their end. However I am sure there are more than a few exceptions. I am also sure that the ones that qualify will be trading at some sort of a premium.

It is important for each taxpayer to understand the nuances of the tax law. For example for a MFJ filer, the top of the 15% bracket is now 56.8k after your exemptions, itemized deductions and IRA or 401k contributions have been applied. That provides a lot more wiggle room for many people to fit through.

FWIW, I happen to think that now is a terrible time to be buying preferred shares. If you are dealing with a high quality issue (as most people should be) they are all trading at significant premiums to their call prices. Many that jump into this asset catagory without a complete understanding of how they work will be in for a rude awakening. They will suffer real losses when their shares get called in at par or trade at a discount to par. There is a lot more to understand about preferreds than just knowing the current yield.

One of the best sources I have found for researching preferred issues is at:

http://quantumonline.com/stklist.htm


I hope this may help.


BRG


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 65794 of 121114
Subject: Re: Prefered Stock with 15% taxable dividends Date: 6/12/2003 11:41 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
This is true, but it is also my understanding that most will not qualify. IIRC, REIT preferreds and any with the word Trust in their title will not qualify. One of the reasons many companies go the route of using preferreds is that it does provide them with a tax deduction on their end. However I am sure there are more than a few exceptions. I am also sure that the ones that qualify will be trading at some sort of a premium. [...]

One of the best sources I have found for researching preferred issues is at:

http://quantumonline.com/stklist.htm


Bruce,

Thank you for the link. I was all set to criticize your opening paragraph (above) when I decided to look at the link. It's amazing (to me) how much the field of preferred stocks has changed!! My only exposure had been to "regular" preferreds, typically issued by utilities and other large capital intensive corporations. I'm reasonably sure these preferred dividends will qualify for reduce rates. However, I wasn't aware of how "creative" the issuers of preferreds had gotten and how complex the analysis of preferred dividends is, relative to the new tax laws. I'm glad I don't invest in them. I'll leave the analysis to others.

Thank you once again for demonstrating how much value each contributor to this board provides.

Ira


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: Larsso Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 65840 of 121114
Subject: Re: Prefered Stock with 15% taxable dividends Date: 6/13/2003 3:28 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Thanks for the link and your comments. Your thoughts on understanding where the preferreds are trading relative to call dates is very well taken. Nothing is a simple as it seems.

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev Thread | Next Thread
Advertisement