Well, I finally gave in to adding some ETFs. Looking at the riskier foreign end and high yield end of the dividend growth spectrum, this made a lot of sense to me. The number of these funds that have increasing payouts is quite small actually. A lot of the ETF managers do not consider payouts to be of highest concern despite the supposed focus of their funds. The best of these funds is Alpine Global Dynamic Dividend Fund. Sporting an impressive 8.2% yield, it pays monthly dividends. It does not have a long trading history, which does merit some caution, so my initial position is not that large.
The other ETF I added is PowerShares HighYield Dividend Achievers. It also pays monthly, and although it yields 'only' about 3%, it is one of the few funds I found that has coverage in areas not represented by the rest of my portfolio. Not one of its top ten holdings is currently in my portfolio. I like getting all this added diversification and what looks like a focus on increasing dividend payments over time.
One of the best 'high QDV' stocks out there is Zenith National. Although we already have more than enough insurance company holdings, I couldn't resist adding this one. Insurance stocks are just such great long term investments. This one has a 3.5% yield and a strong up-trending QDV which is pushing 35%.
Finally, our position in Automatic Data Processing was just doubled, given its large moat to competition. It's closest competitor, Paychex, also one of our holdings, and ADP combined, dominates the payroll processing industry. Owning these two companies, both with growing dividends and great growth prospects, is one of the greatest investment stories for long term growth out there today.
Sunday, May 27, 2007
Monday, May 14, 2007
More Changes
Made a number of portfolio adjustments. Added were Home Depot and Intel. Sold were PPL (could not pass by a quick 40%+ gain), CHT, BLK, and a little of KTC.
On a net basis I have been raising some cash hoping for some decent entries later.
TCHC is bouncing back some today after losing almost half its value. Management announced a share buyback today.
That's all for now...
On a net basis I have been raising some cash hoping for some decent entries later.
TCHC is bouncing back some today after losing almost half its value. Management announced a share buyback today.
That's all for now...
Thursday, May 10, 2007
Taxation of Dividends
A friend recently told me that the capital gains rate is actually lower than the the tax rate for ordinary income. This is true. I goofed on the explanation in my first blog post, but the tax benefit of dividends remains. Here is the correction:
Most people in middle tax brackets or higher want their dividends taxed at the capital gains rate, which is 15%, not the ordinary income rate, which varies but is roughly in the 24-28% area for middle to upper brackets.
However, almost all dividends paid to holders of individual stocks are "qualified dividends."
What is a qualified dividend? It is simply a dividend that "qualifies" for taxation at the lower capital gains rate. There are three criteria for this treatment:
1. The dividend must have been paid by an American company or a qualifying foreign company.
2. The dividends are not listed with the IRS as dividends that do not qualify.
3. The required dividend holding period has been met.
Although most dividends paid on individual stocks are "qualified," be careful about ETFs and mutual funds, because these are more likely to issue "ordinary dividends." Recently more funds are being marketed as "tax efficient" and these are more likely to issue qualified dividends.
The tax law providing this favorable treatment was going to be sunsetted (is that a word?) at the end of 2008, but Congress recently extended it to 2010, so (for now) the tax break is safe.
Congress ought to make this treatment permanent and provide the nation's taxpayers a real incentive to save. The savings rate in the USA is abysmal, and punitive tax law is in part to blame.
Most people in middle tax brackets or higher want their dividends taxed at the capital gains rate, which is 15%, not the ordinary income rate, which varies but is roughly in the 24-28% area for middle to upper brackets.
However, almost all dividends paid to holders of individual stocks are "qualified dividends."
What is a qualified dividend? It is simply a dividend that "qualifies" for taxation at the lower capital gains rate. There are three criteria for this treatment:
1. The dividend must have been paid by an American company or a qualifying foreign company.
2. The dividends are not listed with the IRS as dividends that do not qualify.
3. The required dividend holding period has been met.
Although most dividends paid on individual stocks are "qualified," be careful about ETFs and mutual funds, because these are more likely to issue "ordinary dividends." Recently more funds are being marketed as "tax efficient" and these are more likely to issue qualified dividends.
The tax law providing this favorable treatment was going to be sunsetted (is that a word?) at the end of 2008, but Congress recently extended it to 2010, so (for now) the tax break is safe.
Congress ought to make this treatment permanent and provide the nation's taxpayers a real incentive to save. The savings rate in the USA is abysmal, and punitive tax law is in part to blame.
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