Investing 102

[Payton King]

If everone is thinking that dividends will be taxed at a higher rate, say 25% instead of 15%. Would you change your strategy? I know you are living off the dividend stream, but would you change the dividend to purchase additional shares instead of taking the cash payment?

[bdahlg68]

Payton - I think you'll get a lot of people who say yes they would back out of dividend plays and others who would not. Simply - the change in tax rate creates an unknown. And it's a lot bigger than the tax rate itself. What does it do to stock prices? Would they drop, creating capital decay at least on the short term and therefore a lot of nervous investors? Keep in mind there is a large portion of these dividend stocks owned in tax-deferred accounts. And, that many people have them simply reinvested. While there is power in numbers, the people living off the income stream are the big dogs - and they can have a significant impact on the situation (and in some cases may influence the companies themselves). From the investing standpoint, I'd much rather pay 1-2% more in income tax the see these big changes on capital gains / dividends. That's just me thinking that long term - I want this income stream to be available and significant enough to make a difference when I'm retired. 25 years from now (if I'm lucky), the 1-2% I pay now in extra income tax would have been long forgotten about. Just my humble, semi-ignorant opinion.

[bdahlg68]

So as NLY gets pummeled again, I read this article. And although it's quite speculative, it got me thinking that now might not be a good time to move money out....

http://seekingalpha.com/article/1002...nings-releases

I also looked at the NLY chart going back to October 1997 and shrugged my shoulders... seems it's been like this before and recovered a number of times... in fact many years saw 20% swings it seems (2002, 2003, 2004, 2005 (yikes), 2008, .... and now 2012?). I'm going to be keeping a close eye and sitting tight for the time being. I have lots of time.....

[toy71camaro]

Originally Posted by bdahlg68

So as NLY gets pummeled again, I read this article. And although it's quite speculative, it got me thinking that now might not be a good time to move money out....

http://seekingalpha.com/article/1002...nings-releases

I also looked at the NLY chart going back to October 1997 and shrugged my shoulders... seems it's been like this before and recovered a number of times... in fact many years saw 20% swings it seems (2002, 2003, 2004, 2005 (yikes), 2008, .... and now 2012?). I'm going to be keeping a close eye and sitting tight for the time being. I have lots of time.....

I'm curious as to this as well. I was going to post up a question on peoples thoughts of their current situation. With the passing of their main man, feds changes, and now buyout, is it a desperation move, or a good move. They expect the stock to hit the $13ish mark now. I bailed (last week) before this last big dip because i didnt fully understand it and wasnt comfortable with it. I took a $3 loss. So I'm ok with that. LOL.

But I'm curious to see what their future holds (or what people expect).

[96z28ss]

Originally Posted by toy71camaro

I'm curious as to this as well. I was going to post up a question on peoples thoughts of their current situation. With the passing of their main man, feds changes, and now buyout, is it a desperation move, or a good move. They expect the stock to hit the $13ish mark now. I bailed (last week) before this last big dip because i didnt fully understand it and wasnt comfortable with it. I took a $3 loss. So I'm ok with that. LOL.

But I'm curious to see what their future holds (or what people expect).

I got out of NLY a couple weeks ago and took a $70 loss. which is better than thousands at the current price. The mortgage rates keep dropping and these companies become alot less profitable. Also their dividend will become less and less.

[GregWeld]

I'm thinking you all need to go back and re-read Investing 102 again.... you're starting to think and act like traders. Not Traitors - traders...

Annaly Capital Management (NLY) is now paying almost 14% dividend... and what happens on your old price that you paid too much for? Your dividends BUY MORE shares at LOWER prices... so not only are you buying a higher dividend payer -- you're bringing down your first cost as you go along... and that dividend (at 14%) is HUGE compared to other investments.

NOW --- I WARNED all along that NLY and JNK and HYG etc - or shares of their ilk -- ARE NOT FOR THE FAINT OF HEART! I said this repeatedly. These shares are to be bought for one reason only --- to boost your overall dividend percentage. So you own a Coke (KO) that pays 3+% -- IF you want to boost your dividend percentages -- you can stir the pot with the likes of the NLY's - the JNK's - the HYG's...

If you look at their charts -- they're RANGEY --- they move up and down -- not much in $$ terms but the percentage move is up or down 10% or said another way -- up 10 and down 10 is a 20% move! But ---- the big BUTT ---- even down 20% --- it's paying you 12/13/14% ANNUALLY....


I'm not defending this stock - nor any other... we're not about trying to pick the perfect shares... We're using EXAMPLES ---- and we're LEARNING about how to think about stocks - about how to use them - about dividends - etc ---- all things that many folks didn't know anything about a few months ago. So I'm saying to REMEMBER why you bought something in the first place... 'Cause the market will move up and down many many times in your lifetimes. You'll have to go back at times and really question why you bought what you did.

[toy71camaro]

Originally Posted by GregWeld

I'm thinking you all need to go back and re-read Investing 102 again.... you're starting to think and act like traders. Not Traitors - traders...

Annaly Capital Management (NLY) is now paying almost 14% dividend... and what happens on your old price that you paid too much for? Your dividends BUY MORE shares at LOWER prices... so not only are you buying a higher dividend payer -- you're bringing down your first cost as you go along... and that dividend (at 14%) is HUGE compared to other investments.

NOW --- I WARNED all along that NLY and JNK and HYG etc - or shares of their ilk -- ARE NOT FOR THE FAINT OF HEART! I said this repeatedly. These shares are to be bought for one reason only --- to boost your overall dividend percentage. So you own a Coke (KO) that pays 3+% -- IF you want to boost your dividend percentages -- you can stir the pot with the likes of the NLY's - the JNK's - the HYG's...

If you look at their charts -- they're RANGEY --- they move up and down -- not much in $$ terms but the percentage move is up or down 10% or said another way -- up 10 and down 10 is a 20% move! But ---- the big BUTT ---- even down 20% --- it's paying you 12/13/14% ANNUALLY....


I'm not defending this stock - nor any other... we're not about trying to pick the perfect shares... We're using EXAMPLES ---- and we're LEARNING about how to think about stocks - about how to use them - about dividends - etc ---- all things that many folks didn't know anything about a few months ago. So I'm saying to REMEMBER why you bought something in the first place... 'Cause the market will move up and down many many times in your lifetimes. You'll have to go back at times and really question why you bought what you did.

yeah.. i hear ya.. I really shouldn't of bought it to begin with. As i didn't fully understand the whole mREIT thing, and that's why I bailed before I lost money.

i let the talking heads get to me on something i didn't understand. but at least i didn't let it get me at a point i was out money. heh.

I instead bought something i felt more comfortable with while it was on sale; MCD.

[GregWeld]

Originally Posted by Payton King

If everone is thinking that dividends will be taxed at a higher rate, say 25% instead of 15%. Would you change your strategy? I know you are living off the dividend stream, but would you change the dividend to purchase additional shares instead of taking the cash payment?

Either way - you're paying the same tax. Whether you dividend is "re-invested" or is taken in cash (as I do)... the tax treatment is the same.



My "market sense" take on the changes in taxes is another story altogether!


The percentage of taxes paid on dividends or capital gains etc is really paltry compared to the returns they can make you over a multi year period of time.

Stocks -- compete for your money -- along side many other investment choices. So as an investor -- your choice could be Bonds - Real estate - Stocks - CD's etc. Money is going to go where people THINK they can make an adequate return factoring in taxes. Just as they do now.

My tax free muni bond portfolio makes about 4% tax free... so if you compute what you need to "make" after tax on a dividend stock -- then you just do the math and see what that takes. Obviously at 15% it's one percentage and at 25% it's higher! But then you also have to factor in the TOTAL RETURN.... so bonds that have no growth (held to maturity) ONLY pay their 4%.... A stock that I buy might pay 6% dividend -- but I have to factor the growth of capital into the equation too.

So the real answer is.... nobody knows what the idiots are going to do with the tax rates and THAT is a larger problem right now than if we actually knew. Because right now - we can't really plan - we don't want to invest and get caught making the wrong move etc... and that tends to tear up the "market". I think that's where we are going to be until we have a definitive answer.