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0 pointsabhv4y ago0 comments

Dividends are not an efficient mechanism to return cash to investors. The recipient is forcefully taxed.

Share buybacks technically accomplish the same; the proportional increase in shareholder value should be the same. However, investors who do not want to recognize income that year do not have to; whereas investors who need the dividend income can sell a small number of appreciated shares.

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rileymat24y ago

I need to look at this more, but don’t dividends mostly return real current earnings where share buybacks are moving your return to future earnings which may never exist?

Also, many people are harmed by this tax treatment because a couple making 80k a year pay no tax on the dividend capital gains?

I am just saying dividends v share buybacks are not the same and have other effects.

ghaff4y ago

Yeah. They're different. Dividends give you cash on the barrel each quarter that is very sticky about heading in a downward direction--but tax treatment is pretty much like ordinary income in most cases.

Stock buybacks may drive stock prices upwards in an unpredictable way that may lead to being able to sell appreciated stock in a tax-advantaged way a couple years out.

Theoretically, it's all the same after tax effects but we don't live in that theoretical world.

rileymat24y ago

https://www.nerdwallet.com/article/taxes/dividend-tax-rate

These are lower than ordinary income.

1 more reply

lotsofpulp4y ago

> Also, many people are harmed by this tax treatment because a couple making 80k a year pay no tax on the dividend capital gains?

Really? I am only aware that at least long term capital gains tax applies to everyone for qualified dividends.

rileymat24y ago

https://www.investopedia.com/ask/answers/12/how-are-capital-...

For the 2020 tax year, you pay 0% on long-term capital gains if you have total income of $40,000 or less; 15% if you have income of $441,450 or less; and 20% if your income is greater than $441,450.

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colinmhayes4y ago

Dividend tax rate is the same as capital gains rate which is what you pay when you sell your stock if you've held it for a year.

hnfong4y ago

AFAIK, the situation is totally different for non-US tax residents (for those without a tax treaty with US anyway).

Dividends are taxed at a flat 30% rate. Capital gains are not taxed by the US. At least that's my situation.

Companies that pay heavy dividends are a substantially less attractive buy in my case.

bananabreakfast4y ago

That's not true at all.

Dividends are taxed as regular income, unless they're qualified dividends then they have their own rate.

1 more reply

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rileymat24y ago

I need to look at this more, but don’t dividends mostly return real current earnings where share buybacks are moving your return to future earnings which may never exist?

Also, many people are harmed by this tax treatment because a couple making 80k a year pay no tax on the dividend capital gains?

I am just saying dividends v share buybacks are not the same and have other effects.

ghaff4y ago

Stock buybacks may drive stock prices upwards in an unpredictable way that may lead to being able to sell appreciated stock in a tax-advantaged way a couple years out.

Theoretically, it's all the same after tax effects but we don't live in that theoretical world.

rileymat24y ago

https://www.nerdwallet.com/article/taxes/dividend-tax-rate

These are lower than ordinary income.

1 more reply

lotsofpulp4y ago

> Also, many people are harmed by this tax treatment because a couple making 80k a year pay no tax on the dividend capital gains?

Really? I am only aware that at least long term capital gains tax applies to everyone for qualified dividends.

rileymat24y ago

https://www.investopedia.com/ask/answers/12/how-are-capital-...

For the 2020 tax year, you pay 0% on long-term capital gains if you have total income of $40,000 or less; 15% if you have income of $441,450 or less; and 20% if your income is greater than $441,450.

1 more reply

colinmhayes4y ago

Dividend tax rate is the same as capital gains rate which is what you pay when you sell your stock if you've held it for a year.

hnfong4y ago

AFAIK, the situation is totally different for non-US tax residents (for those without a tax treaty with US anyway).

Dividends are taxed at a flat 30% rate. Capital gains are not taxed by the US. At least that's my situation.

Companies that pay heavy dividends are a substantially less attractive buy in my case.

bananabreakfast4y ago

That's not true at all.

Dividends are taxed as regular income, unless they're qualified dividends then they have their own rate.

1 more reply

j / k navigate · click thread line to collapse