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pmchem posted:god drat, $MU up 18% tonight after reporting thanks for the tip, I was looking to sell around $100, $110+ is an easy sell if the price survives the night bought in around $50 in late 2022. still like the company, but this is a good exit for me
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Mar 21, 2024 03:45
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pmchem posted:$gld and similar etfs are grantor trusts that are more effort to calculate taxes on than equity etfs and I’m not sure if my broker would auto calculate the relevant metrics or not (I don’t really ever trade gold etfs). Sorry, could you describe a little further what the issue is? It’s been a long, long time since I touched GLD but I just treated it as capital gains or loss as appropriate at tax time.
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Mar 21, 2024 03:51
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pmchem posted:anyone have an opinion on the most hassle-free way to have a bull position on gold in a portfolio? Find a high cost producer that has a lot of torque to movement in the gold price?
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Mar 21, 2024 03:55
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Agronox posted:Sorry, could you describe a little further what the issue is? It’s been a long, long time since I touched GLD but I just treated it as capital gains or loss as appropriate at tax time. well, this page notes that grantor trust gains may be taxed at ordinary income rates: https://www.fidelity.com/learning-center/investment-products/etf/special-rules-commodity-etfs and this 12 page doc from spdr made it all seem more complicated than dealing with with selling equity etfs. HOWEVER i’m doing all this on my phone tonight while my wife talks to her sister and I admit didn’t read every page of it before posting. https://www.spdrgoldshares.com/media/GLD/file/SPDR-Gold-Trust-Tax-Information-2023.pdf i originally went down the rabbit hole trying to find out if gld or gldm issued k-1’s (appears not). that was my main concern, k-1 effort. any other efficiency edge would just be nice
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Mar 21, 2024 03:59
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and here https://www.elitetrader.com/et/threads/gld-options-treated-as-1256-contracts-by-e-trade.330234/ and links therein, some differences among how brokers have treated $gld options in the past tax wise
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Mar 21, 2024 04:22
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pmchem posted:and here https://www.elitetrader.com/et/threads/gld-options-treated-as-1256-contracts-by-e-trade.330234/ Yep, this rings a bell. No K1, just a funky 1099. I don't think it was that painful for the accountant, but it always came very late.
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Mar 21, 2024 04:26
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pmchem posted:well, this page notes that grantor trust gains may be taxed at ordinary income rates: Interesting, thanks. Yeah, a K-1 would be a huge dealbreaker for most people I would think.
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Mar 21, 2024 04:27
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This might be a question with an obvious answer, but what's the point of dividends? I know what dividends are, but why would someone prefer a stock or etf because of its dividend yield? Money doesn't just appear out of nowhere unless you're the Fed, so a stock that issues a dividend would have it "come off" from its stock price, right? I can see this in some stocks with high dividend yields that go down a set amount after they pay out. So basically a stock with a dividend is like a stock that forces you to sell a percentage of itself at regular periods. Even if you reinvest what you receive you have to pay taxes on the "sale". I hear dividends provide "regular income" which is especially useful as you get older apparently, but why not just sell shares yourself? That way you have control over when you want access to the money as well as get only what you actually need, avoiding paying extra taxes? Is it a psychological thing where you avoid seeing your share count go down as time goes on?
UnfurledSails fucked around with this message at 11:28 on Mar 21, 2024 |
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Mar 21, 2024 10:40
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UnfurledSails posted:This might be a question with an obvious answer, but what's the point of dividends? I know what dividends are, but why would someone prefer a stock or etf because of its dividend yield? Money doesn't just appear out of nowhere, so a stock that issues a dividend would have it "come off" from its stock price, right? I can see this in some stocks with high dividend yields that go down a set amount after they pay out. So basically a dividend is like a stock that forces you to sell a percentage of itself at regular periods. Even if you reinvest what you receive you have to pay taxes on the "sale". I hear dividends provide "regular income" which is especially useful as you get older apparently, but why not just sell shares yourself? That way you have control over when you want access to the money as well as get only what you actually need, avoiding paying extra taxes? Is it a psychological thing where you avoid seeing your share count go down as time goes on? This may be wildly wrong, but my feeling is it's a remnant of when capitalism didn't believe its own bullshit of eternal growth. People would rather have a stable, profitable company that would distribute its profits to people so they can use it for their personal expenses, than use stocks as the retirement plan (number go up forever). Never thought about it, but this is my guess. Nowadays, you can trust that the company will manage their finances better than you, such that even if they are sitting on one of the largest piles of money in the world (aapl) you don't mind them not giving it to you cause you're sure they'll make good investments and interest out of it.
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Mar 21, 2024 10:56
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UnfurledSails posted:This might be a question with an obvious answer, but what's the point of dividends? I know what dividends are, but why would someone prefer a stock or etf because of its dividend yield? Money doesn't just appear out of nowhere, so a stock that issues a dividend would have it "come off" from its stock price, right? I can see this in some stocks with high dividend yields that go down a set amount after they pay out. So basically a dividend is like a stock that forces you to sell a percentage of itself at regular periods. Even if you reinvest what you receive you have to pay taxes on the "sale". I hear dividends provide "regular income" which is especially useful as you get older apparently, but why not just sell shares yourself? That way you have control over when you want access to the money as well as get only what you actually need, avoiding paying extra taxes? Is it a psychological thing where you avoid seeing your share count go down as time goes on? It is a thing where a stock goes ‘ex dividend’ and the price falls proportionately to the total cash returned to shareholders. It picks back up after a while all things being equal. In many jurisdictions dividends are a means of passing on tax credits to shareholders. There’s an element of subjectivity to it though, some companies feel dividends are the best way of returning value to shareholders and others decide there’s greater value in reinvesting profits in the business. It really depends on the business/industry though, I wouldn’t expect consumer staples (for example) to present huge growth opportunities so that’s probably a sector that pays out a decent chunk of profits as dividends. Were that cash to sit in a company that didn’t have any good plans to invest it the shareholders would only be getting an interest return on part of an equity investment which they might not be happy with. Compare that to the tech sector where there’s new growth opportunities emerging all the time so it makes sense for a company to retain cash for investing. There’s middle grounds too, in Australia we have dividend reinvestment plans where you can ask the company to buy shares with the cash component of the dividend at a slight discount to the share price, and the shareholder still gets the benefit of the tax credits. I guess that happens in the US too, I’ve just never seen it. There’s drawbacks too, you don’t want a company paying too much of its profits out as dividends because some capex and growth is usually a good thing for the sustainability of a business and you can’t do that if there’s little cash retained. You also don’t want to invest in companies sitting on vast piles of cash for too long without a plan for investing it, for the reasons I’ve mentioned above. AAPL probably gets a pass because of their record but you wouldn’t want a junior miner holding half its market cap in cash without a clear intention to do some M&A or something.
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Mar 21, 2024 11:41
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UnfurledSails posted:This might be a question with an obvious answer, but what's the point of dividends? Dividends are inherently just forced sales, yeah. All else being equal, buybacks are a better way to return cash to shareholders, since they are sales by people who want to sell, at the exact time and price that they want to sell. All else is not equal though, and they are treated differently for tax purposes (e.g. I have to pay US withholding tax on US dividends but not when I voluntarily sell shares) plus there's a belief that companies might be less likely to cut their dividend than to pause buybacks, etc. As you say, if you want to generate income then you can/should just sell shares on your own terms. Edit: gay picnic defence posted:AAPL probably gets a pass because of their record but you wouldn’t want a junior miner holding half its market cap in cash without a clear intention to do some M&A or something. Last I checked AAPL's net cash was around $100 billion, so about 4% of market cap, and their stated target is 0. jawbroken fucked around with this message at 12:24 on Mar 21, 2024 |
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Mar 21, 2024 12:16
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I think a lot of BWM people think dividends are the road to easy passive income.
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Mar 21, 2024 13:50
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UnfurledSails posted:This might be a question with an obvious answer, but what's the point of dividends? If a company has good revenue, but is no longer really a growth company. Would you rather have a stable dividend or rely on their CFO's ROIC? Do you want that company to invest "your money" or do you want to do it yourself? If you manage your position in a high to moderate dividend stock and can get your Yield on Cost above that company's ROIC. Girbot fucked around with this message at 14:04 on Mar 21, 2024 |
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Mar 21, 2024 14:00
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Dividends are regular and planned and hit across the company evenly so you don't relinquish relative share control to cash out. That's important if you have >1% of shares. It also encourages a long term relationship with the company rather than liquidation of shares.orange sky posted:Nowadays, you can trust that the company will manage their finances better than you, Now this is funny
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Mar 21, 2024 14:04
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UnfurledSails posted:This might be a question with an obvious answer, but what's the point of dividends? I know what dividends are, but why would someone prefer a stock or etf because of its dividend yield? Money doesn't just appear out of nowhere unless you're the Fed, so a stock that issues a dividend would have it "come off" from its stock price, right? I can see this in some stocks with high dividend yields that go down a set amount after they pay out. So basically a stock with a dividend is like a stock that forces you to sell a percentage of itself at regular periods. Even if you reinvest what you receive you have to pay taxes on the "sale". I hear dividends provide "regular income" which is especially useful as you get older apparently, but why not just sell shares yourself? That way you have control over when you want access to the money as well as get only what you actually need, avoiding paying extra taxes? Is it a psychological thing where you avoid seeing your share count go down as time goes on? There's various reasons, here are a few not yet mentioned: 1. This is more important in countries without strong regulators and accounting bodies, but to a certain extent a public company is a black box and dividends are tangible signs that they aren't bullshitting you. Put another way: you as an investor would find it very, very difficult to verify the financial statements of, say, Inner Mongolia Ball Bearing Co. or whatever, but if they're throwing off $100MM in dividends every year at least it's a sign that they're legit and making money. (It's not a perfect sign; plenty of frauds or collapsing businesses issued dividends, including Charles Ponzi himself, but it's a sign.) 2. Past a certain point a company may find that, given its cost of capital, level of expertise, etc., that there are no positive NPV projects or new markets worth entering, and that it's better to return money to shareholders rather than have it sit on the balance sheet collecting dust or wasting it. 3. If you are the kind of investor who wants to live off of investment income, receiving a regular dividend is much lower volatility than raising funds through selling shares, and there's a value to that.
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Mar 21, 2024 14:17
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Not sure what "lower volatility" is supposed to mean there. You are not in control of what a company pays you in dividends, but you can exactly control your income from selling shares, and achieve whatever volatility you want.
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Mar 21, 2024 14:23
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jawbroken posted:Not sure what "lower volatility" is supposed to mean there. You are not in control of what a company pays you in dividends, but you can exactly control your income from selling shares, and achieve whatever volatility you want. See: Dividend Growth, Dividend Aristocrats/Kings
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Mar 21, 2024 14:28
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Sure, as I covered previously. But increasing dividends are not low volatility, you might not want to be forced to increase your income (basically being forced to sell more shares), and you should care about total return instead of just dividend yield, because if you want to increase your income you can simply sell more.
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Mar 21, 2024 14:36
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agro’s post was good but I want to add three other points. 1. dividends are intrinsically more fair to less sophisticated investors or investors who absolutely require regular income. consider it from the viewpoint of owning a business (since shareholders own the business), using a covid crash example: at the end of march 2020, due to a series of leveraged funds getting wiped out and other market mechanics, the “market” was substantially below fair value given the already-announced major series of federal reserve interventions and easily foreseen congressional actions. savvy investors (ackman is a famous cnbc example) had already begun covering their shorts or getting long. if you and rich-guy-X both owned 1% of a company at the end of the month, but you had to sell shares for living income and he did not (and chose not to because the market at large was temporarily dislocated), then your ownership of the business going forward is smaller relative to his. however, if there were dividends instead, your relative ownership would remain the same. now you say, what if the rich guy just reinvested his dividends in the company? but, that presents a different calculation: perhaps he had not sold shares in order to avoid taxes, and the cash from dividends would go into a different stock. you can’t assume he would always reinvest directly. dividends, in that respect, protect the future equity ownership of otherwise forced sellers during times of market distress. 2. executive compensation schemes tied to stock prices provide incentives to take bad actions (crimes, manipulation of buyback timing, whatever) to maximize stock prices. buybacks are a tool in that. here’s one of many quickly googleable articles discussing aspects of that: https://newrepublic.com/article/159504/corporations-scam-shareholders-screw-workers 3. buybacks provide less tax revenue to the government compared to dividends (only recently partially rectified). they’re basically a tax dodge for rich people. i do appreciate companies that strategically deploy extra buybacks to support the stock when it is under their own fair valuation of it, such as berkshire. that is good stewardship. as an individual investor i do not seek out stocks simply because they have a dividend, though
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Mar 21, 2024 15:01
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1) and 3) are just that dividends force taxable income by effectively being share sales, which, yeah, that's why you as a shareholder should not prefer them unless you're otherwise compensated for losing optionality (e.g. by different tax treatment). This is the share trading thread, not a thread about maximising the amount of tax you pay. 2) is about bad executive compensation incentives, which is fine and believable to some extent, but isn't inherent and I don't know if the effect is that signficant. You can/do accidentally incentivise executives to destroy your company in a variety of different ways. Perhaps instead of arguing against buybacks you should argue against executive bonuses that are based on stock price, which will probably be about as effective (i.e. negligibly). I really don't understand why any share trader would want to be forced to sell shares (again, unless they're fairly compensated to). But when you phrase it as a dividend, everyone gets excited about the prospect for some reason. Deferring taxation is one of the biggest advantages investors have.
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Mar 21, 2024 15:18
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somehow you completely missed my point #1. dividends do not reduce your percent ownership of a business. selling shares does. there is a difference that has nothing to do with tax treatment of the income.
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Mar 21, 2024 15:22
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They do exactly the same thing. Aside from tax treatment, etc, a 5% dividend is exactly the same as forcing everyone to sell 5% of their shares back to the company. You're then free to buy back into the business, deploy that money elsewhere, etc. There's no rational difference (again, aside from tax treatment). I really worry when people don't understand this.
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Mar 21, 2024 15:28
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you are looking at it from the company’s point of view or CFO point of view. my point #1 is was from the individual investor point of view, quite specifically a retiree needing regular income as compared to a wealthy investor who does not need to personal cash flow from the stock position at regular intervals. there is absolutely a difference from the investor’s point of view. if they sell shares their ownership percentage goes down unless the company is the buyer and all other owners sell in the same proportion at the same time. if there is a dividend, they maintain the same percentage ownership of the business as before. further, if they are a forced seller of shares to cover a fixed dollar amount expense at temporary and distorted market lows (e.g. the end of march 2020), that has long lasting sequence of returns impact on long term equity ownership. I really worry when people don't understand this.
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Mar 21, 2024 15:41
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I’ll tag on one more note. Yes, buybacks increase your ownership of the company. Yes, in a perfectly rational, forward looking and efficient market the only difference that would REALLY matter would be tax treatment. but the efficient markets hypothesis is not the actual world we live in, and if you gotta sell way more shares during an artificial market flash crash to cover rent than you did last month… that’s a real harm! meanwhile if it’s just market insanity not companies failing, the dividend may be less volatile
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Mar 21, 2024 15:51
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You're effectively saying: if I am being forced to sell more shares for income than the dividend yield, then I have zero optionality anyway, so I'm indifferent to whether I'm being forced to sell that fraction through dividends or market sales. This is vaguely true but obviously ignores short-term optionality (maybe I don't want to take my dividend on the quarter timing, maybe I can avoid the March 2020 dip and tighten up my spending for a couple of months). If you always want more income than the dividend yield then sure, we all agree that you might not care about being forced to take that income. Indifference is not a preference, though. Edit: And, to be clear, forced sales aren't necessarily a bad thing in all cases. Maybe you're forced to sell at a peak. You have lost optionality regardless. jawbroken fucked around with this message at 15:54 on Mar 21, 2024 |
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Mar 21, 2024 15:52
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Stock buybacks also have an inherent problem in that due to the business cycle companies will be turning the largest profit when their stock prices are relatively inflated in price and thus buying back shares when they are at their most expensive.
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Mar 21, 2024 15:54
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pmchem posted:Yes, buybacks increase your ownership of the company. Yes, in a perfectly rational, forward looking and efficient market the only difference that would REALLY matter would be tax treatment. but the efficient markets hypothesis is not the actual world we live in, Okay, but I was so careful to say this many times that I have no idea why you were arguing about it.
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Mar 21, 2024 15:58
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I think the case for dividends reasonably strong for less sophisticated investors. Most people spend most of their lives relying on wage income to pay bills. Dividends are a reasonably natural extension of that and are fairly easy to understand: I buy company, company makes money, company pays me money. The stock market is fairly volatile. While we know that there is no real difference between collecting $X amount of dividends per month and selling $X worth of shares per month, the former is arguably simpler since it can come as an automatic payment into your bank account every month. Sure, you can automate selling shares as well, but some people may be uncomfortable selling shares when the market is moving a lot. Also, ideally a dividend investor will get a steam of income steadily increasing over time. This mitigates inflation and means that someone living off dividends may have a truly set it and forget it source of income to live off of, instead of needing to adjust share sales over time. For example, here is SCHD:  Also, buybacks are not mathematically equivalent to dividends.The income taxes on long term capital gains and qualified dividends are the same, but buybacks have a small excise tax, dividends do not. So, for someone living off their stocks, dividends may be slightly preferable as they cost the company less to pay out than buybacks.
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Mar 21, 2024 16:08
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let’s use this contrived example for reductio ad absurdum: company A pays 5% of its start of year market cap out in annual dividends, monthly distribution, no buyback. company B executes 5% of its start-of-year cap in buybacks over the year at some unknown schedule. perhaps the total dollar amount is evenly spread across all trading days, since in this example they’re not market timing. both stocks have a price of $100/share and equal market cap to start the year. investor Z has to cover rent at the start of each month, say $1000. what is the difference of investor Z entirely owning either a pile of company A (enough to cover rent via divs) or company B? situation: the stock crashes due to some external non-company related event (say a pandemic? or wall st flash crash!) and the stock price plummets 50% from day 3 in the month to day 27 in the month. the following month the crisis is saved (helicopter money! the fed! mrna! regulators! etc) and the stock begins re-approaching its original price. if Z owns A, at the end of the end of the crisis month they get the usual dividend to cover rent and can basically ignore the stock price. unless the business suffers to the point of dividend cut down it just doesn’t matter to Z. if Z owns B, at the end of the end of the crisis month they had to sell twice as many shares that month in order to to cover rent. they have suffered a larger than usual loss of relative business ownership compared to investors who could “wait it out”. buybacks could not keep the stock price afloat during market dislocation. so like, if the market is not perfectly efficient and perfectly very forward looking, there can be real long term differences to people. like there’s a reason that $XOM took on mounds of debt to continue its dividend during covid: https://www.macrotrends.net/stocks/charts/XOM/exxon/dividend-yield-history some people really do view dividends as an instrument to help cover fixed expenses without being affected by the capricious and volatile nature of temporary market dislocations (like, say, negative prices for crude oil) anyway i think i’ve made enough dividend arguments for today. i do not base my long term investing or trading strategies around dividends, i have no need. but i can see their use and difference from share sales.
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Mar 21, 2024 16:17
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For an idiot like me, what effect does the US suing Apple have on long term investment in the company? Just a blip? Or a bad omen for the future?
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Mar 21, 2024 16:20
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Cacafuego posted:For an idiot like me, what effect does the US suing Apple have on long term investment in the company? Just a blip? Or a bad omen for the future? One would hope it would refocus Apple on making good hardware that people want to buy instead of relying on walled garden techniques of customer retention.
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Mar 21, 2024 16:31
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Cacafuego posted:For an idiot like me, what effect does the US suing Apple have on long term investment in the company? Just a blip? Or a bad omen for the future? As always, it depends. How much are the expected fines/damages? Will they have to change the way to do business? What are the chances Apple wins the lawsuit? It's way too early to tell without knowing exactly what they're being sued for, and how strong the case is. Remember, Microsoft got sued (and lost) by the government, and now look at how much they're worth.
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Mar 21, 2024 16:33
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drk posted:I think the case for dividends reasonably strong for less sophisticated investors. Sure, there are irrational reasons to prefer all kinds of investment strategies, like the moon cycle, or your horoscope, or preferring prime numbers, or technical analysis. And there are reasons to believe other people might be irrationally investing based on their menstrual cycle, tea leaves, etc, and try to take advantage of that. It doesn't tend to be that interesting to discuss, though, because it's rarely either evidence-based or falsifiable. Excise tax is just another form of tax so hopefully we can all agree to have it covered under "tax treatment". All of that is okay if the growth in your dividend yield happens to exactly match inflation (or the unrelated growth in your expenses), but it's just more irrationality that I don't know to usefully discuss, because it's just "vibes". pmchem posted:let’s use this contrived example for reductio ad absurdum: I know you already discredited your own example by labelling it a "reductio ad absurdum" (incorrectly, given this isn't a proof of anything under discussion), but this is all covered by: jawbroken posted:Edit: And, to be clear, forced sales aren't necessarily a bad thing in all cases. Maybe you're forced to sell at a peak. You have lost optionality regardless. i.e. you've invented a scenario where it could be better to be forced to sell an amount at some time through dividends vs being forced to sell it at another time to pay rent. Like I said, forced sales can be bad or good, but you're free to sell yourself at any time, so you've always lost optionality. You can decide if you're better at timing than an arbitrary quarterly reporting/dividend cycle, or come up with some other market inefficiency. I won't argue with that.
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Mar 21, 2024 16:35
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Cacafuego posted:For an idiot like me, what effect does the US suing Apple have on long term investment in the company? Just a blip? Or a bad omen for the future? Wal-Mart effectively killed someone back in the day through negligent trucker management / safety standards, their stock dipped a tiny bit then took off from the perceived discount. That's an apples to oranges example, but the juiciest fruit always get watered.
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Mar 21, 2024 16:46
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Thanks all for calming my worries after seeing the news and drop today!
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Mar 21, 2024 17:06
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I think that if a company is profitable and stable but otherwise not really near any blue oceans it's entirely reasonable to return those profits to shareholders. Not every company in the world needs to be widget factories plus an investment corporation with a portfolio of AI and retail ice cream stores. If you're pulling 100 million a year in profits and don't have any obvious new opportunities that match your company's skillset and strengths just pay out the owners, they can decide what to do with it. Not having a giant pile of idle cash lying around also reduces the temptation for your CEO to light it all on fire investing in crypto or ChatGPT but for dogs. Whether to use the mechanism of dividends vs. buybacks is really a choice of tax efficiency vs. psychology. Buybacks have a more efficient tax treatment under US laws. Dividends send a strong signal about stability and dependability, plus people like seeing money show up in their account.
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Mar 21, 2024 17:14
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How you guys feel about Reddit stock?
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Mar 21, 2024 18:33
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Hammer that sell button
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Mar 21, 2024 18:43
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Isn't another problem with buybacks, that there is not an infinite amount of stock to buy back? Eventually a permanently-profitable company that keeps using its profits to buy its own stock should run out of stock to buy back. Except like, who even owns the stock at that point? I think this is actually an asymptotic curve or some poo poo also whenever the company buys stock the reason the price goes up is because they have to keep finding stockholders willing to sell, and they keep satisfying the ask for more and more sellers. At some point the concentrated value of the remaining shares gets high enough, and the track record of stock buybacks is so solid, that the remaining shareholders don't want to sell at any price, or perhaps the price they're willing to sell at goes up faster than the actual calculated discounted future value of the company, or some other weird math issue?
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Mar 21, 2024 18:48
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also reddit spiked to over 56 and is now below 50 and falling, if you somehow had IPO shares IMO you should be selling them
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Mar 21, 2024 18:50
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