Section
Dividends
Income from shares, with the parts that surprise people: what a margin loan does to a yield, what a cut does to a plan, and why some payments are taxed differently from the ones you expected.
A dividend is paid at the discretion of a company's board, which is what separates it from a bond coupon. It can be raised, held, cut or suspended, and a yield bought with borrowed money has to clear the interest rate on the loan before it adds a dollar of income.
The tax treatment depends on what the payment actually is. Qualified dividends, ordinary dividends, return of capital and payments in lieu of dividends each show up differently on a Form 1099. The dividend income calculator works out yearly income and yield on cost, and what is left after margin interest when the shares are bought with a loan.
Columns
All columns →Myth check
Treating Dividend Stocks as Bond Substitutes Breaks in a Bad YearDividend stocks are for income that grows over time; money for fixed needs belongs in bonds or cash, because a dividend can be cut in the year you need it.
Ledger
Buying Dividend Stocks on Margin Turns Yield Into a Spread TradeBorrowing to buy dividend stocks only adds income when the yield beats your loan rate; below that, it cuts income and adds a margin call.
Answers
Concepts
- Return of capital
A distribution that pays back part of an investor's own capital; it isn't taxed when received and instead reduces the investor's cost basis in the shares.
Calculators
- Dividend Income Calculator
Yearly dividend income and yield on cost, and what is left after margin interest when the shares are bought with a loan.