Are dividends real income?

[RogueTrader273]

Since a share's price is adjusted downward by the amount of the dividend, how can a dividend be called income? Isn't it the same as having a bank account where they pay you 3% but take 3% out of your account beforehand? Or am I missing something here? Just wondering...

 

[sydboy007]

Since a share's price is adjusted downward by the amount of the dividend, how can a dividend be called income? Isn't it the same as having a bank account where they pay you 3% but take 3% out of your account beforehand? Or am I missing something here? Just wondering...

Not necessarily. Sometimes the share price falls more / less than the gross dividend.

In theory the profits can perpetually recharge the dividend "pool" and that's at the end of the day what you are "buying" - a share of the profits.

Not sure of your bank analogy. If you lend $10,000 to the bank at 4% with qtrly interest payments you would receive 1% or $100 each interest payment. At the end of the term you receive your initial 10K balance.

 

[SilverRanger]

Since a share's price is adjusted downward by the amount of the dividend, how can a dividend be called income? Isn't it the same as having a bank account where they pay you 3% but take 3% out of your account beforehand? Or am I missing something here? Just wondering...

If you take a short term view, that is buying just before ex-div and sell on ex-div then it's hard to call it income. However if you take a longer term view, say for illustration purpose, you never sell the share, then as long as the company survives, you are entitled to its profits in perpetuity. The share price movement in this case will not matter (since you never sell anyway) and you are paid dividends every year, and hopefully in some future time cover your initial share purchase price. That's surely an "income" (or I should say profit). In between, it's an "income" to you as long as the share price stays above your initial purchase price, which the longer you hold, the more likely it will happen if you believe in the conventional investment theories.

 

[Bill M]

Of course it is income. I've held some stocks for several years and the dividends have not only given me an income the stock has also paid for itself. I am currently a self funded retiree who partly lives off of his dividend incomes.

 

[ROE]

Since a share's price is adjusted downward by the amount of the dividend, how can a dividend be called income? Isn't it the same as having a bank account where they pay you 3% but take 3% out of your account beforehand? Or am I missing something here? Just wondering...

You bought a rental place paying you 5% yield, your properties went down 10% in value does it mean your
properties disappear in 10 year times? ...you continue to get the rental income until such time you don't have a tenant..

Same in stock market, business as long as it making profit, you entitle to the dividend provided it is a business with a history of paying dividend...when stock doesn't make profit it doesn't pay dividend...

and only when it went belly up you lose your capital but price move up and down every day
has little bearing on stock paying dividend.

if you buying good business time will be your friend, your chance of getting more dividend and price of the stock goes up is fairly high.

take Woolies for example in 2000 it pay 10c dividend every 6 months, today it pays 60c dividend every 6 months
that 600% in dividend increase along with share price increase

a 1000 shares in woolies in 2000 cost you $5000, today the same share price you can sell for $34,000
not counting spins various off like SCP which you get them for free add even more to your pocket..

If you in the game of income and dividend you got to take a long term view, buy up good business and ignore day to day price movement.

 

[Judd]

Since a share's price is adjusted downward by the amount of the dividend, how can a dividend be called income? Isn't it the same as having a bank account where they pay you 3% but take 3% out of your account beforehand? Or am I missing something here? Just wondering...

A question which can be asked but a strange one in my view. To view in the way the question is framed is to take the position that a company produces nothing but a share price. No goods, no services, no profit distribution to shareholders in the way of dividends. However, to each their own.

 

[polpak]

The ATO regards received dividends as real "taxable income", while same "taxable income" can be reduced by various deductions, including some previous losses.


Bank interest payments are calculated (often daily) using multiplier (mostly not accumulative) to calculate account holders accrued interest, then this accumulated interest is paid at arranged dates.



Returns on shares vary considerably, some pay close to a regular % rate, the % relative to their chosen periods for average share prices.

Exist opportunities for shareholders to increase their % return by purchasing or selling prior to shares going ex-dividend, with many corporations showing relative price changes around dividend entitlement times.

Shareholders in Australia increase their benefits trading stocks with those not able to benefit from franking credits.

 

[laurie]

There is one thing that hasn't been mentioned here is Franking Credits just as important as the dividend itself if not more

 

[FxTrader]

There is one thing that hasn't been mentioned here is Franking Credits just as important as the dividend itself if not more

Indeed, and most notably to well informed self-funded retirees where 100% franking can yield a reasonably high tax free income threshold if you have sufficient funds invested.

 

[Bill M]

Indeed, and most notably to well informed self-funded retirees where 100% franking can yield a reasonably high tax free income threshold if you have sufficient funds invested.

And with your SMSF in Pension mode ALL your franking credits are refunded from the ATO back into your super fund.

 

[andrecurry]

To be a qualified dividend, the investor must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.

 

[Bill M]

To be a qualified dividend, the investor must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.

What are you talking about? Please post links as your whole paragraph does not make any sense what so ever.

 

[ROE]

What are you talking about? Please post links as your whole paragraph does not make any sense what so ever.

45 Days rules has always been the case unless something has change but not lately

http://www.ato.gov.au/Individuals/I...You-and-your-shares-2012-13/?default=&page=11

 

[Bill M]

45 Days rules has always been the case unless something has change but not lately

http://www.ato.gov.au/Individuals/I...You-and-your-shares-2012-13/?default=&page=11

Yes I know about that, but he is rambling on about "qualified dividends" and 121 days and 60 days, I got no idea what that's about.

 

[ROE]

Yes I know about that, but he is rambling on about "qualified dividends" and 121 days and 60 days, I got no idea what that's about.

The only date you care about is XD date and 45 days holding rules
it has been from as far back as I know you get dividend if you have it 1 day before XD date.

 

[Joe Blow]

To be a qualified dividend, the investor must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.

Please disregard the post I have quoted. This user name was a spammer from the Philippines (now banned) who simply cut and pasted information from a source that discussed dividends in the US: http://taxes.about.com/od/income/qt/dividend_income.htm

 

[Craton]

There is one thing that hasn't been mentioned here is Franking Credits just as important as the dividend itself if not more

Agreed, those tax inputs are a great way to minimize tax and have certainly helped me out with offsetting tax on interest earnings.

 

[qldfrog]

Agreed, those tax inputs are a great way to minimize tax and have certainly helped me out with offsetting tax on interest earnings.

I have to say I do not understand what all the fuss is about Franking?
As I understand it:
if franked then you only pay the difference between your tax rate and the company rate [30% as per ease of calculation ] youmay get a refund,
if not franked then you have to include the fact you will pay full tax on dividends received
So what is the big deal once you take that into account?
I understand it make a difference but why should I prefer franked return of 2%
to unfranked return 3.6% [supposing you are taxed at 50% marginal rate?

• case one you pay extra 20% tax on the dividend 2%-> net return 1.6% after tax
• case two, you pay 50% tax on 3.2% return-> net return 1.6% after tax

->1.6 % tax free return

Am I missing something?

 

[TheUnknown]

Can someone explain how dividends work? You can give me an example using TLS & 30k worth of TLS.

How often are dividends paid and what do you get back on 30k?

 

[Trembling Hand]

Can someone explain how dividends work? You can give me an example using TLS & 30k worth of TLS.

How often are dividends paid and what do you get back on 30k?

Best you watch this,