Share Picks 2020

voluntary

Mantis Toboggan wrote: »

Why would you not want the dividends even if you are paying tax on them?

I got a decent dividend payment recently and only paid 25% dividend withholding tax?

1. Witholding tax is not the whole tax you pay on dividends. You pay the full extend of the income tax which applies to you. Witholding tax is just what the brokerage abroad 'witholds' automatically.
2. The answer is pretty simple, you reduce your investment by the tax. When you get a dividend, the amount paid out is being deducted from the share price, so you end up with a share worth less than it was and cash unfavourably taxed.

voluntary

Shedite27 wrote: »

Yeah I was about to say, it's income in the end of the day. I don't specifically look for dividend paying stocks, but take the 60% of it I get when I get it.

I'll give you a simplified example.

Today you buy a dividend-paying stock for €100 per share. The company is going to pay a 10% dividend (cut-off date tomorrow).

After the dividend, your stock is worth €90 (10 euros is being cut off the stock value automatically by the exchange) and you get €10 in cash which you pay 40% tax on.

So effectively tomorrow, your €100 investment will be worth €96 minus transaction fees.

You just lost 4% of your wallet to the exchequer.


But if you waited until tomorrow, you could buy this stock for €90. Have no dividend, no tax implication, and have ZERO profit/loss.
This is assuming the stock valuation doesn't rapidly change overnight.

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bcklschaps

voluntary wrote: »

Being a private Irish tax resident you either avoid dividend-paying stocks or sell them before the dividend cut-off point and re-purchase (assuming you want to keep the stock long term). Irish Revenue taxes dividends too much to make any reasonable use of them if you're a regular Joe.


The same applies to large special dividends paid occasionally by US-based companies. Such dividends are crafted with US tax residents in mind as US tax residents have special rules on special (once-off) dividends and pay very little taxes, while Irish tax residents are being charged the full extent of the income tax.

In an extreme situation that a US-based company decides to cease to exist, sell all its assets and distribute cash proceedings to its shareholders, you're going to be charged 40% on these, even though at the same time you make no capital gains, so effectively you close your investment at 40% unrecoverable loss!

It's mad, but this is Ireland. A great place for large corporations, but a pain for a regular taxpayer

.

The argument for (Irish tax residents) buying/holding dividend paying stocks is a bit more nuanced than that Voluntary.

The tax treatment while not insignificant, isn't quite that draconian and a lot depends on your own personal situation

Also the effect on the share prices of companies on ex-dividend dates is not always reflective of the payout eg. Company pays 5% dividend, Share price does not necessarily go down by 5%

Theres a bigger discussion about the pros/cons of buying dividend shares as opposed to non dividend paying shares... (internet will answer that for ye)

and indeed whether or not Allianz is a good purchase :rolleyes:

Mantis Toboggan

voluntary wrote: »

1. Witholding tax is not the whole tax you pay on dividends. You pay the full extend of the income tax which applies to you. Witholding tax is just what the brokerage abroad 'witholds' automatically.
2. The answer is pretty simple, you reduce your investment by the tax. When you get a dividend, the amount paid out is being deducted from the share price, so you end up with a share worth less than it was and cash unfavourably taxed.

I don't know much about this but all I can say is that I got €380 dividend cheque last week. The withholding tax (25%) had been taken off. I lodged this to my bank account, not sure how this would be picked up for income tax?

I get these a few times a year and as far as I know I haven't paid income tax on these. Should I be declaring these to revenue?

voluntary

Mantis Toboggan wrote: »

... Should I be declaring these to revenue?

Yes, you should. Deducting what has been already withheld from your tax obligation.

.

Mantis Toboggan

voluntary wrote: »

Yes, you should. Deducting what has been already withheld from your tax obligation.

.

Also to add that since I got the dividend payment the share price has gone up.

Kilboor

voluntary wrote: »

I'll give you a simplified example.

Today you buy a dividend-paying stock for €100 per share. The company is going to pay a 10% dividend (cut-off date tomorrow).

After the dividend, your stock is worth €90 (10 euros is being cut off the stock value automatically by the exchange) and you get €10 in cash which you pay 40% tax on.

So effectively tomorrow, your €100 investment will be worth €96 minus transaction fees.

You just lost 4% of your wallet to the exchequer.


But if you waited until tomorrow, you could buy this stock for €90. Have no dividend, no tax implication, and have ZERO profit/loss.
This is assuming the stock valuation doesn't rapidly change overnight.

.

Can you explain this more please? I'm not sure where you are coming from with 10 euro being deducted from the share price. Are you referring to dividend premium? This isn't always the case.

voluntary

Kilboor wrote: »

Can you explain this more please? I'm not sure where you are coming from with 10 euro being deducted from the share price. Are you referring to dividend premium? This isn't always the case.

The dividend amount is being deducted from the share price automatically by the majority of listings around the world. I think Canadian listings may not be doing this but you'd need to double-check that.

Kilboor

voluntary wrote: »

The dividend amount is being deducted from the share price automatically by the majority of listings around the world. I think Canadian listings may not be doing this but you'd need to double-check that.

I've not heard of this automatically occurring. When it comes to the ex-dividend date the share price will most likely fall however this is not always the case.

My understanding is a dividend is either cash or stock. In the case of cash you get paid cash, it's not taken from the share price itself, however the share price might fall as a result of ex-dividend prices.

daheff

No share price automatically is adjusted.

The market makers adjust their valuations to reflect the dividend payout. Other market considerations come into play and effect the price.


For the poster who doesn't understand why the price I adjusted

Think of it like this. You start off with 100eur in one bank account. You move 10 to another, leaving 90 in the first. Would you still expect the bank to give you 100e from the first? No because the value of the account has dropped.

Same with the company. It's value has dropped by the amount of the dividend.

voluntary

The majority of modern exchanges do this automatically. You can sometimes make some money in the process, as some investors may be inclined to buy a stock which drops on a day because of the dividend pay off.

All US stocks would be like that. Europeans I dealt with the same. I can't say about Irish as I've never had much interest in Irish stock as until recently it was too expensive to buy them.

bcklschaps

voluntary wrote: »

The dividend amount is being deducted from the share price automatically by the majority of listings around the world. I think Canadian listings may not be doing this but you'd need to double-check that.

I'm not sure where you got that info from..... but I've never heard of it or never seen it happen .... and I invest in dividend stocks in the US and around Europe.


I think what you mean to say is Dividend is deducted from the company earnings per share, (EPS) value.


The Market dictates the share price.

Share prices typically fall on ex-dividend date (for obvious reasons..giving away money etc.) but not always, and not always by the dividend percentage amount either ...and ususally recover almost immediately.

voluntary

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timetogo1

Are there any European companies that allow you to DRIP your dividend into fractional shares. That looks like how they get around it in the US.
I know it's not an option in Degiro but I don't really know what other brokers there are.

Bob24

@voluntary, the price of a share is whichever amount buyers are willing to offer for it. There is no fixed official list price. So I don't see how the exact dividend amount could be automatically deduced from the share price.

If the price could be automatically reduced what would be the mechanics of it; i.e. which stakeholder would do what for the the exact dividend amount to be deduced from the share price?

To me bcklschaps provided the accurate description of what happens, i.e the price is likely to fall to reflect the reduction of cash reserves on the company's balance sheet, but there is nothing saying it has to be the case and ultimately the market decides:

bcklschaps wrote: »

The Market dictates the share price.

Share prices typically fall on ex-dividend date (for obvious reasons..giving away money etc.) but not always, and not always by the dividend percentage amount either ...and ususally recover almost immediately.

whatever76

voluntary wrote: »

Yes, you should. Deducting what has been already withheld from your tax obligation.

.

yes you should - I looked into this a few years back as started to do my own tax returns. I get dividends every quarter in the calendar year (work for MultiNational - these are Perf. share awards that have built up over a number of years ) I reinvest the dividend by buying more shares ( set it up this way when I started YEARS ago and never changed - luckily it worked out for me as share price grew ) ; I still need to declare this as its income .

So I get say 1000 euro for 2019 ( this includes the tax deduction as company based in US so I am set up to whatever tax laws these are subject to being foreign and its taken out on the day of transaction ) … I declare this value in Form 11 for 2019 and what I owe is then calculated at the end which is basically 50% so I owe approx. 500 quid - painful ! :mad: ( and then when I sell those shares if they profit I pay CGT !)

voluntary

bcklschaps wrote: »

I'm not sure where you got that info from..... but I've never heard of it or never seen it happen .... and I invest in dividend stocks in the US and around Europe.


I think what you mean to say is Dividend is deducted from the company earnings per share, (EPS) value.


The Market dictates the share price.

Share prices typically fall on ex-dividend date (for obvious reasons..giving away money etc.) but not always, and not always by the dividend percentage amount either ...and ususally recover almost immediately.

voluntary

Bob24 wrote: »

@voluntary, the price of a share is whichever amount buyers are willing to offer for it. There is no fixed official list price. So I don't see how the exact dividend amount could be automatically deduced from the share price.:

I had a good link explaining that but can't find it right now. Most exchanges facilitate the ex-dividend price adjustment. I think Canadian may not be doing this and only depend on buyers/sellers to adjust their orders accordingly.

voluntary

whatever76 wrote: »

yes you should - I looked into this a few years back as started to do my own tax returns. I get dividends every quarter in the calendar year (work for MultiNational - these are Perf. share awards that have built up over a number of years ) I reinvest the dividend by buying more shares ( set it up this way when I started YEARS ago and never changed - luckily it worked out for me as share price grew ) ; I still need to declare this as its income .

So I get say 1000 euro for 2019 ( this includes the tax deduction as company based in US so I am set up to whatever tax laws these are subject to being foreign and its taken out on the day of transaction ) … I declare this value in Form 11 for 2019 and what I owe is then calculated at the end which is basically 50% so I owe approx. 500 quid - painful ! :mad: ( and then when I sell those shares if they profit I pay CGT !)

As I said, dividend paying stocks are not really crafted with Irish private taxpayer in mind.

Most countries treat dividends as special form of income and have preferential tax treatment, US would impose low tax on regular dividends and super-low tax on large special dividends (more like a capital gains tax). Irish tax law doesn't distinguish regular from special dividends soinvesting in US stocks you should be aware of that and careful, otherwise you may end up with a huge tax bill and a capital loss.

Bob24

voluntary wrote: »

I had a good link explaining that but can't find it right now. Most exchanges facilitate the ex-dividend price adjustment. I think Canadian may not be doing this and only depend on buyers/sellers to adjust their orders accordingly.

As I understand it, your screenshot above from Zacks doesn't say the stock price is automatically adjusted (which again I don't understand how it would be possible as the stock price is constantly changing and is purely the result of price discovery based on offer v.s. demand). The way I read it, it says that some stakeholders will markdown the stock price based on the dividend amount and aim for that value (with no guarantee for that value to ever be achieved). That is rather different from an automatic adjustment.

To say it differently: because the cash position of the company is reduced by a certain amount (the amount required to pay the dividend) doesn't mean the market value of the company is reduced by that exact same amount (as there are many other factors besides the cash position which determine how the markets values the company).

bob mcbob

voluntary wrote: »

This is not done automatically by the stock market but instead is done by funds who buy the stock. For example some income funds just want to maximise the dividend they receive from a company so they will buy in just before a stock goes ex-div (that is why the price often rises just before a stock goes ex-div) then sell pretty soon after when they have the dividend guaranteed. They will then invest in another dividend payer, etc, etc

Ekels

Bob24 wrote: »

@voluntary, the price of a share is whichever amount buyers are willing to offer for it. There is no fixed official list price. So I don't see how the exact dividend amount could be automatically deduced from the share price.

If the price could be automatically reduced what would be the mechanics of it; i.e. which stakeholder would do what for the the exact dividend amount to be deduced from the share price?

To me bcklschaps provided the accurate description of what happens, i.e the price is likely to fall to reflect the reduction of cash reserves on the company's balance sheet, but there is nothing saying it has to be the case and ultimately the market decides:

Efficient market hypothesis is something which isn't readily visible in these cases, as you point out.

When the English banks had to cancel their dividends at the end of March upon suggestion from the Bank of England, instead of share prices going back up to reverse the amount accrued to pay out dividends, the share price actually dropped and the cancellation had the opposite effect. The market responded on sentiment, not accounting postings.

voluntary

bob mcbob wrote: »

This is not done automatically by the stock market but instead is done by funds who buy the stock.

Limit orders (buy/sell) should be automatially adjusted by the amount of dividend paid.

voluntary

some more

breadmonster

pump time :eek:

who's starting to use twitter as an indicator

https://twitter.com/realDonaldTrump/status/1257650279740301314

Bob24

Looks like the ECB's stimulus programme could be illegal in Germany: https://www.dw.com/en/top-german-court-says-ecb-bond-buying-scheme-partially-contravenes-the-law/a-53333374

Now that will be interesting ...

Jim2007

voluntary wrote: »

As I said, dividend paying stocks are not really crafted with Irish private taxpayer in mind.

I would say it is more a case of the Irish government policy....

littlemac1980

plasmin wrote: »

Waiting for this for a while 😭

Hope you caught the spike in KTOV this morning! Still going strong.

Shedite27

@voluntary, I didn't know that about dividends. Every day's a school day as they say

Bob24

Jim2007 wrote: »

I would say it is more a case of the Irish government policy....

Yep than map shows how crazy it is here.

Not to mention that a good number of countries have special fiscal vehicles for small and medium individual investors meaning the tax rates listed on the map you posted aren’t even due for those investors. I am not a tax specialist but thinking of our closest large neighbours I believe both the British and the French can reduce/avoid the base tax rates on dividends respectively though ISA and PEA special investment accounts.

Sadly we have nothing like this here ...