4 ms·

Dividends are a forced distribution for the shareholder. With the ability to sell fractional shares, stock buybacks are equivalent to optional dividends.

mxschumacher 6y ago
And friendlier in regards to taxation. Doing a roundtrip of buying more shares with dividends means paying income taxes.
- jogjayr 6y ago
  I hear this a lot, but is it really true? For shares of US companies (or foreign companies listed on US exchanges) held for > 60 days before the ex-dividend rate, dividends are taxed at the long-term capital gains rate.[1] 1. https://www.investopedia.com/ask/answers/090415/dividend-income-taxable.asp https://www.investopedia.com/ask/answers/090415/dividend-inc...
  - skybrian 6y ago
    The rate may end up the same in many situations, but it’s still helpful to control the timing on when you pay long term capital gains. With dividends you’re still paying now rather than later, or perhaps never. (There’s no capital gains on donated stock or inherited stock.)
  - christophilus 6y ago
    The point is that you pay 0 tax until you sell. That’s better than being forced to pay long term capital gains every year on a dividend.
IgorPartola 6y ago
Do most people reinvest dividends in the same stock? What you say makes sense, but I can also see holding a stock and using the dividends for another use, for example just cash withdrawals or to buy another stock.
- yCombLinks 6y ago
  I don't know if it's "most people", but basically every dividend stock has a DRIP program that will automatically use your dividends to purchase shares of that stock. It's a very common strategy outside of the frenzied trading encouraged by apps like robinhood.
  - rsj_hn 6y ago
    40% of corporate equity is owned by foreign funds that don't pay US taxes at all (thank you, capital inflows!) 30% of corporate equity is owned by tax advantaged retirement funds Only 30% of shares are even subject to this tax trade off discussion.

mxschumacher 6y ago

And friendlier in regards to taxation. Doing a roundtrip of buying more shares with dividends means paying income taxes.

jogjayr 6y ago
I hear this a lot, but is it really true? For shares of US companies (or foreign companies listed on US exchanges) held for > 60 days before the ex-dividend rate, dividends are taxed at the long-term capital gains rate.[1] 1. https://www.investopedia.com/ask/answers/090415/dividend-income-taxable.asp https://www.investopedia.com/ask/answers/090415/dividend-inc...
- skybrian 6y ago
  The rate may end up the same in many situations, but it’s still helpful to control the timing on when you pay long term capital gains. With dividends you’re still paying now rather than later, or perhaps never. (There’s no capital gains on donated stock or inherited stock.)
- christophilus 6y ago
  The point is that you pay 0 tax until you sell. That’s better than being forced to pay long term capital gains every year on a dividend.

IgorPartola 6y ago

Do most people reinvest dividends in the same stock? What you say makes sense, but I can also see holding a stock and using the dividends for another use, for example just cash withdrawals or to buy another stock.

yCombLinks 6y ago
I don't know if it's "most people", but basically every dividend stock has a DRIP program that will automatically use your dividends to purchase shares of that stock. It's a very common strategy outside of the frenzied trading encouraged by apps like robinhood.
- rsj_hn 6y ago
  40% of corporate equity is owned by foreign funds that don't pay US taxes at all (thank you, capital inflows!) 30% of corporate equity is owned by tax advantaged retirement funds Only 30% of shares are even subject to this tax trade off discussion.