| You make some good points here. 1. I stated index in this post (whoops); luckily I called it a list on the website. 2. Partly, in seeking an income strategy, that seemed important to me. Also, frankly, it allowed me to limit the scope of my dataset a bit. Maybe I should go back to the drawing board and include quarterly stocks as well, though. 3. I'll look into it I'll jump ahead and answer your last question as it's relevant to the others: I'm using Polygon.io's API to pull financial data. I too have noticed that the data can be unreliable, repeats, and has many records missing certain data. I've sanitized that data on my backend, checking for and removing duplicates, as well as only displaying historical records with adequate data. Beyond that, I'm not sure how to improve the quality. 4. What about dividend reinvesting? Can't you avoid taxes if you do that? 5. Is that also true with leveraged funds? It seems like many of these high yield dividend stocks are in that category. 6. Interesting, I'll look into that. Hope I responded to all of these points adequately. I appreciate the thoughtful and intelligent answer. I'm still not sure (and need to do more research) on whether such a dividend strategy is useless. It seems like reinvesting could provide good returns as a strategy--when the stock dips, so long as the payout is constant, you simply get more income. Maybe I'm missing something, though. |
The way companies get around this (return value to shareholders without triggering a taxable event) is by repurchasing and retiring shares.
For example, there are 100 public shares trading at $1/share. At the end of the quarter, the company has a spare $1. If they issue a dividend, every shareholder gets $0.01, which is taxed.
Instead of issuing a dividend, they repurchase 1 share for $1. Assuming the value of the company hasn't changed, the per-share price should now be $1.01. Basically, they gave you an untaxed $0.01 increase in equity value, which you can choose to recognize on your own schedule.
This might give you another idea, which is to list companies with stock repurchase programs.
Also, re 3: make sure you account for the expense ratio of these funds. Since dividends are relatively volatile (lots of new entrants and exits on the margin), you might be surprised by how much these ETFs charge for their service. Sometimes, it's justifiable as a price worth paying. Other times it isn't, use your judgement and VOO as a benchmark of what bare-minimum expenses look like.
As an example, USOI's expense ratio is 0.85% and VOO's is 0.05%. Over long holding periods, a 17x higher expense ratio is extremely meaningful.