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First, capital gains and dividends have basically the same tax treatment (not identical, but close enough for anyone holding for longer than a year). Second, a

by MR4D 7y ago

First, capital gains and dividends have basically the same tax treatment (not identical, but close enough for anyone holding for longer than a year). Second, a company’s market capitalization can only grow in one of two ways: increase in the P/E ratio, or increase in earnings. Of the two, the latter is more sustainable, and less susceptible to market downturns. Dividends are just the percentage of earnings a company pays out to its shareholders for various reasons (I’ll skip the myriad of reasons for brevity). The best measure of sustainable value creation is ROIC (Return On Invested Capital). Most people don’t use it because it’s not a readily available statistic and it’s not easy to calculate. But for the long term, I don’t know of anything better. Still, p/e is important.

jjeaff 7y ago
>First, capital gains and dividends have basically the same tax treatment (not identical, but close enough for anyone holding for longer than a year). No, that's not correct. If you are being paid a dividend, whether it be qualified or not, that money is double taxed. Once at the corporate earnings rate and then again to you personally at capital gains rate. As a shareholder, whether that tax all comes out of your pocket or not, doesn't matter. Your increase in value is effectively taxed at 60-70%. But that is not the case if the company you invest in, rather than retaining earnings to pay dividends, reinvests into growth or other capital expenditures or keeps large sums of untaxed money in overseas accounts. Thus continually pushing the stock upwards. And allowing investors to make their own choices about cashing out. Be it by selling shares of getting loans using the stock as collateral. Why in the world do you think Apple has $250B in cash, a full quarter of their total market cap, mostly stashed away in tax free zones? It is for the simple reason that people can invest and get that money reinvested for them all without ever having to sell or take a distribution and then get taxed before using it or reinvesting it yourself.
- MR4D 7y ago
  Go back and read what I said. Better yet, read Schwab’s tax summary here: https://www.schwab.com/public/schwab/investing/retirement_and_planning/taxes/current-rates-rules/dividends-capital-gains-tax-brackets https://www.schwab.com/public/schwab/investing/retirement_an... My statement is correct.
  - jjeaff 7y ago
    I think you need to re-read what I wrote. You are correct that your personal rate is similar for dividends vs capital gains. But you are iggiring the bigger picture that dividends money had to be taxed on the corporate side before it was given to you. Capital gains that are propped up by huge cash stores in overseas tax free accounts are not.

by MR4D 7y ago

jjeaff 7y ago

>First, capital gains and dividends have basically the same tax treatment (not identical, but close enough for anyone holding for longer than a year). No, that's not correct. If you are being paid a dividend, whether it be qualified or not, that money is double taxed. Once at the corporate earnings rate and then again to you personally at capital gains rate. As a shareholder, whether that tax all comes out of your pocket or not, doesn't matter. Your increase in value is effectively taxed at 60-70%. But that is not the case if the company you invest in, rather than retaining earnings to pay dividends, reinvests into growth or other capital expenditures or keeps large sums of untaxed money in overseas accounts. Thus continually pushing the stock upwards. And allowing investors to make their own choices about cashing out. Be it by selling shares of getting loans using the stock as collateral. Why in the world do you think Apple has $250B in cash, a full quarter of their total market cap, mostly stashed away in tax free zones? It is for the simple reason that people can invest and get that money reinvested for them all without ever having to sell or take a distribution and then get taxed before using it or reinvesting it yourself.

MR4D 7y ago
Go back and read what I said. Better yet, read Schwab’s tax summary here: https://www.schwab.com/public/schwab/investing/retirement_and_planning/taxes/current-rates-rules/dividends-capital-gains-tax-brackets https://www.schwab.com/public/schwab/investing/retirement_an... My statement is correct.
- jjeaff 7y ago
  I think you need to re-read what I wrote. You are correct that your personal rate is similar for dividends vs capital gains. But you are iggiring the bigger picture that dividends money had to be taxed on the corporate side before it was given to you. Capital gains that are propped up by huge cash stores in overseas tax free accounts are not.