• 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
Qualified dividends, what has them?
#1
I am constantly re-learning how LITTLE I know.
 
I was going to try to stop buy and selling stocks on just a smaller gain, just to see them keep rising as soon as I sold. Or just doing bad in general.
So, I thought I'd tried a new approach of buying things with "good" dividends, holding them and not worrying about price fluctuations, and keeping the dividends for
household expenses, estimated taxes, whatever...
I bought NLY, AMLP, GLOP and PBA; along with Royal Dutch Shell, which is now falling in price with oil & not sure whether to hold, but might sell just to get a tax loss--oh, wait, that's another subject.
So, today in double checking the rules on what makes a dividend qualified (I remembered 60 day holding period), I see that REITs and MLPs (I guess even ones like
AMLP that don't issue a K-1) likely don't qualify to get qualified dividends, so dividends just treated as ordinary income or ST capital gains? Great.
 
In my little search, I did find one article in which the writer said that she always regularly bought a certain REIT (I think it was) on ex-div day when the price was down;
then sold it on the day before ex-div day. She said that if you added it all up, she made more that way than by collecting the dividends. Well, looking at the chart for the particular security you mentioned, there were lots of times it was lower and higher than close to ex-div date.
 
But, really no sense if me holding these and taking an arbitrary gain on ex-div day vs. buying high and selling low over and over--if I can accurately predict the timing; or
just watch and sell when a gain and buy when it's down again--if the divs aren't qualified.
This looks to be getting harder to do as lots of things seem to be just free falling recently...
 
I don't really know for sure how to tell by looking at stock lookup in Fidelity or elsewhere, if a particular security does or doesn't get qualified dividends. You would think this would be easier to do...
 
Any advice or just comments appreciated.
 
Thanks in advance!
  Reply
#2
Distributions from REITs are usually a combo of non-qualified dividends and return of capital. So the tax you pay will often be lower than if you had qualified dividends of the same amount. On the other hand, the return of capital reduces the basis, so if you later sell, that will increase your CG.
 
I don't know how the AMLP distributions are treated. If it issues a combined K-1, then I would think not qual. so your suspicion would be right. If the corporation paying the dividend is paying income tax on its income, then I think that the dividends would be qualified. That is the underlying idea behind having the qualified dividends -- reduce the double taxation. A REIT does not pay income tax. Thus no qualified dividends.

"I don't really know for sure how to tell by looking at stock lookup in Fidelity or elsewhere, if a particular security does or doesn't get qualified dividends. You would think this would be easier to do..." 

I agree. It would be a good piece of info to have in advance.
  Reply
#3
Ketchup:

There are several tax-related nuances with dividends/distributions. Most people learn these incrementally along the way as you (and many of us) are learning every now and then. A few notes that come to my mind:
 
REIT
If you have REITs, you may want to check out the new 20% passthrough deduction as part of the recent tax bill.

LINK https://seekingalpha.com/article/4133193...orm?page=1

Return of Capital

The "return of capital" is not a taxable event (i.e., you don't pay tax as yet) because it used to reduce the original cost-basis. If the cost-basis becomes zero, the RoC becomes taxable at the capital-gain rate, even though you hold on to the shares.
 
Dividend Tax Withholding for Foreign Companies
Another thing to be aware of is the foreign withholding requirements. Dividends from many European stocks, as well as other countries, will be withheld by default per the country's applicable rules. The foreign taxation can get complicated if one has too much withholding due to their foreign dividend stocks.

Dual share-class for Tax Efficiency
In some cases, there are separate classes of stocks (each with a different taxation implication) for the same foreign company. RDS/A, RDS/B is a handy example (RDS/B is exempt from the withholding) that comes to mind.
  Reply
#4
Thank you so much!
I will spend a little, make that lot, of time reviewing this. And learn little by little.
  Reply
#5
AMLP distributions are non-dividend (in 2017)
 
NLY distributions are a combination of ordinary income (taxable) ... and return of principal. NLY is paying 11.99% but the 52-wk performance is -12.88%. It is a mortgage REIT. (I own some but I don't like it)
 
Royal Dutch has A and B shares. I think A shares withhold a foreign tax but that may be in the process of changing. And you're correct, energy / oil is taking a beating with crude prices falling -$20 recently. This may be the time to buy refiners ... IF you're willing to buy anything in these volatile markets.
 
Natural Gas prices spiked 18% yesterday.
  Reply
#6
Regarding distributions from the AMLP ETF: as several others have pointed out, with this ETF you don’t receive a K-1 (AMLP is a C corporation, which means it pays income taxes,  just like a company such as Chevron — unlike most ETFs).   Most years (I’ve owned AMLP since late 2011), the AMLP distributions are 100% return of capital (“non-dividend distributions” on the Fidelity year-end tax form) and thus not taxable if you hold AMLP in a taxable account, but they reduce your cost basis in the shares (as others have mentioned).  This means that when you sell the shares, having a lower basis than your original cost means you’ll have a higher gain (or lower loss) on those shares.
 
BUT — something else to keep in mind:  in a couple of past years since 2011, the AMLP distributions were NOT 100% return of capital.  The most recent example was 2014, in which only 35% of the total distributions were return of capital.  The rest was reported by Fidelity, on my tax form, as QUALIFIED dividends (because I met the holding-period requirement, as with any normal ETF).
 
The reason that 2014 was very different is that that was the year in which Kinder Morgan Inc. purchased all of the shares of its MLPs and rolled up those assets into the corporation (it eliminated the MLPs altogether).   As a result, the AMLP ETF had to sell the shares of the Kinder Morgan-related MLPs it held, and apparently had a gain.  To the extent that other corporate parents that are the general partners in MLPs may do the same thing in the future — to simplify their corporate structure, to make it easier to access financing for expansion of pipelines, etc. — the future percentage of AMLP’s distributions that are return of capital (and thus not taxable when received) may be less than 100%.
 
I mention this only because I’ve read, from time to time in the past year, especially since the tax reform, that more corporate parents of MLPs might do the same thing that Kinder Morgan Inc. did.
  Reply


Forum Jump:


Users browsing this thread: 1 Guest(s)