Message Font: Serif | Sans-Serif
 
No. of Recommendations: 1
Hi all,

Since I'm obliged to pay 25% tax on every cash dividend I receive (automatically reduced at the time of payment), the main reason I'm here at II (in addition to IV) is for diversification purposes.

I saw at the website of Central Securities Corporation (NYSE:CET) that stockholders are generally given the option of receiving additional stock instead of cash, at their election.

Do you know of any other business on the scorecard that offer a similar option?

Have a great week,
OTV
Print the post Back To Top
No. of Recommendations: 0
Hi OTV!

As a Home Fool, I don't speak for II, TMF or anyone but myself....but offhand I know of no other II pick that offers stock as an option to dividends. That does not mean there is not one, since some company-direct DRIP programs may offer this option....and I don't typically DRIP.

One security I own does issue dividends in stock ( versus cash ), and the stock dividends are not taxable until you sell the stock...a great way to get tax deferral in a taxable account....KMR ( "twin" to MLP KMP ).

Cheers!
Murph
Home Fool
Print the post Back To Top
No. of Recommendations: 0
OTV,

Many companies that pay dividends offer reinvestment programs. This involves owning the shares through the company. There is typically a set up fee and somtimes transaction charges. Contact investor relations if you want to set one up and/or get details. This is the way my grandfather invested back in the day, as it was often cheaper than via a broker.

Since owning shares through the company creates a lot of extra accounts to manage, and brokerage costs have come down a lot over the decades, most simply reinvest dividends via the broker. Most offer dividend reinvestment for free (not all do partial shares and often there are restrictions on non-US stocks). Again, best to contact your broker to ask about dividend reinvestment.

Ralph
Helical Investor
Print the post Back To Top
No. of Recommendations: 0
OTV,

One more comment. You opened this post with some tax commentary. Dividend reinvestment does not typically relieve a tax obligation. I don't know why you pay 25% tax on every dividend (ex-US?, foreign national?) but if there is a reason you should inform your broker (or a company if setting up direct ownership) of your full status. It could limit what you are able to do.

Ralph
Helical Investor
Print the post Back To Top
No. of Recommendations: 0
Murph mentioned KMR as the stock dividend version of KMP. That's one I like, too. Also, EEQ is the stock dividend version of II rec EEP. I own both EEQ and KMR personally.

Best,
Paul
Print the post Back To Top
No. of Recommendations: 0
I believe NGG gives you the option of taking the dividend in shares rather than cash.

David
II Home Fool
Print the post Back To Top
No. of Recommendations: 0
Hi,
Thank you all for the detailed answers.
The reason I have to pay 25% tax on each dividend is that I'm an ex-U.S investor.
Unfortunately, I find it hard to impossible to evaluate II recommendations in light of that tax obligation of me. In addition, I find it hard to compare II recs to IV recs both in terms of estimated upside and in terms of risk grading.
This makes it hard for me to decide, for example, whether to invest new money in a hypothetical II or IV rec (assuming both are appropriate to my portfolio in terms of diversification/asset allocation and risk profile).
On one hand, I've heard that II recs & valuation estimates tend to be on the conservative side compared to those of IV (is that because of assuming slower growth for the same businesses? Sometimes it seems like the valuation estimate of II is more like the "buy below" price of the same IV rec). On the other hand, I couldn't find any official guideline for such comparisons or considerations.
I do value the diversification benefit of having recommendations from more than one service, but since my primary goal is capital gain and not current income, I find it hard to appreciate whether II recs are appropriate to new money in terms of pure estimated capital gain (assuming dividend reinvestment after a 25% tax deduction of each dividend).
If you have some useful rule of thumb, methodology or math formula that incorporates that 25% tax, and/or suggested method of thought about how to select those II recs that will be an optimal addition in favor of a non-dividend-paying rec, I will be grateful if you share it.
Or should I just compare estimated upside (valuation divided by current rate) for both services?
Kind Regards
OTV
Print the post Back To Top
No. of Recommendations: 1
...If you have some useful rule of thumb, methodology or math formula that incorporates that 25% tax, and/or suggested method of thought about how to select those II recs that will be an optimal addition in favor of a non-dividend-paying rec, I will be grateful if you share it....

Hi OTV!

I'm not familiar with the rules of your tax situation, so one thing I would ask is whether the 25% tax applies to MLP distributions as well as normal dividends.

Another thought ( from a net dividend after taxes standpoint ) is that you may want to look at the normally higher dividends from REITS, if they are all taxed the same.

As I understand it, your strategy focuses primarily on capital gains versus "current income". However, please understand that many of us here are not focused on "current income"; rather on building a dividend stream that grows faster than inflation so that when we retire/start to use these funds, they cover most/all of our living expenses without regard to stock prices at the time. The dividends we receive are plowed back into building this stream versus spending the dividends now.

Another thought for you: many studies have shown that over the long run, dividend paying stocks have outperformed non-dividend payers in total return. Indeed, some 40% of the markets returns over the long run have come from dividends.

Certainly other TMF services focus more on capital gains than II does (SA, HG, IV, etc.,), but for me, I wish I had adopted the dividend growth strategy when I was 35 versus at 57 when I did ( now 67 )....because I would be a whole lot better off. ;-)

Cheers!
Murph
Home Fool
Print the post Back To Top