This Is the Best Dividend Play in the Market

If you're a dividend investor like me, your ideal dividend stock would have these four traits:

  1. Stability
  2. Growth opportunity
  3. A big yield
  4. The ability to thrive in various market conditions

That's an ideal, of course. Good luck finding all of that in one stock. But if you'll allow me to cheat a little, I will tell you about a group of six stocks that, when bought together, may be able to achieve this ideal.

The play
The six stocks I'm talking about are really three pairs of related companies.

Companies

Dividend Yields

What they do

ADP (NYSE: ADP  )

Paychex (NYSE: PAYX  )

3.2%

4.8%

These two dominate the payroll processing industry. ADP focuses on big companies, while Paychex focuses on small and medium-sized companies.

Altria (NYSE: MO  )

Philip Morris International (NYSE: PM  )

6.3%

4.5%

Sister companies that share the Marlboro brand-- Altria in the U.S., Philip Morris International (after spinning off from Altria in 2008) everywhere else.

Annaly Capital (NYSE: NLY  )

Chimera (NYSE: CIM  )

15.9%


17.6%

Related real estate investment trusts (REITs) that buy up mortgage-backed securities and make money on the interest rate spread between borrowings and purchases. Annaly sticks to safer agency-guaranteed securities and manages Chimera's portfolio of mostly non-agency-guaranteed securities.

Let's break this down by the four traits I mentioned earlier:

Stability
ADP and Paychex provide a good deal of stability to a portfolio. Since they process payrolls, they're hurt by high unemployment rates. However, they are able to weather the ups and downs of the economy with their rock-solid balance sheets. (Did I mention ADP is one of only four non-financial companies with AAA-rated debt?)

Altria and Philip Morris International provide stability with their brand power and free cash flows, but their balance sheets are more leveraged, and they face a number of threats through litigation and taxation. Yet, as one company or separate companies, they've racked up an amazing history of disproving the naysayers.

Annaly and Chimera are operating in an ideal environment right now. With the Fed keeping interest rates artificially low, the spread between what Annaly and Chimera can borrow at and what they can invest in is high. While these companies are smart enough to lock in a significant portion of these spreads through interest-rate swaps, it's probably overly optimistic to believe that these dividend yields will stay above 15%. Remember that as REITs, these two must pay out 90% of their taxable income in dividends. Hence by definition, their dividend payouts will be more volatile than the other four companies. As an additional consideration, much like with Wall Street firms, it is very difficult for an individual investor to properly assess the trading operations of these two.

Growth opportunity
As the big dogs of the payroll-processing industry, ADP and Paychex have some pricing power and some room to expand their businesses. Analysts expect five-year growth rates greater than 10% for each.

With just 16% market share, Philip Morris International has a huge opportunity to grab a bigger piece of the international market pie. Altria's domestic cigarette market share is already around 50%, and cigarette volumes in the U.S. are on the steady decline. Altria's growth strategy is purely pricing power. With its brand and the inelastic demand for tobacco, it can certainly achieve that goal, but it'll have to settle for constrained growth.

As I explained earlier, Annaly and Chimera are in an ideal situation right now. To expect growth on top of that is pushing it. For what it's worth, analysts expect 1.6% growth for Annaly and 8% growth for Chimera over the next 5 years.

A big yield
Here's where Annaly and Chimera shine. The dividend yields of ADP and Paychex are almost puny in comparison, but those yields come with stability.

The ability to thrive in various market conditions
Of course, with these six, we get the diversity of three different industries: -- payroll processing, tobacco, and the mortgage industry. ADP and Paychex sell their services to businesses, Altria and Philip Morris International sell their products directly to consumers, and Annaly and Chimera compete in the capital markets.

In addition, consider this situation. If the Fed raises interest rates, Annaly and Chimera would likely lose their ability to generate huge interest spreads. ADP and Paychex would also be affected negatively by possible near-term economic sluggishness. However, they both earn interest on their float -- the payroll money they keep before they cut checks for their clients. Higher interest rates mean higher rates of return.

Putting it all together
We could dicker about the exact composition of this mini-portfolio.

Perhaps for stability, you prefer McDonald's and Wal-Mart to ADP and Paychex. You may see upside in the 4% dividend yield of commercial REIT Crexus, another company managed by Annaly Capital. Or, for a bigger yield, you may like rural telecom Windstream (Nasdaq: WIN  ) and its 8.8% dividend.

However, the general principle stands: Diversification in your dividend portfolio can shore up weaknesses in the individual stocks.

To use my example, folks who value stability over eye-popping dividend yields will want to weight the dividend portion of their portfolio toward stocks like ADP and Paychex. Those who can take a bit of risk with their high yields can look to companies such as Altria and Philip Morris. And for those who can properly evaluate the business models of companies like Annaly Capital (and I can't overstress what a big "if" this is) and sift out the legitimate big dividends from the dividends bound for big cuts, there is opportunity in the big yields.

Remember three things as you build out the dividend portion of your portfolio:

  1. Not all dividend stocks are the same. They run the gamut from "safe and boring" to "risky and complicated."
  2. A diversified dividend portfolio across this spectrum helps smooth out company-specific risk
  3. Weight your dividend portfolio based on your own risk tolerance and circle and competence.

As Treasuries and savings accounts offer miserly yields these days, dividend stocks become that much more attractive. But as always, do your homework, allocate your assets properly, and wait for the right prices. Good luck out there!

For more dividend stock ideas, check out seven from my colleague Matt Koppenheffer.

Anand Chokkavelu owns shares of Altria and Philip Morris International. Paychex is a Motley Fool Inside Value selection. Philip Morris International is a Motley Fool Global Gains pick. Automatic Data Processing and Paychex are Motley Fool Income Investor selections. The Fool owns shares of Altria Group and Annaly Capital Management. The Fool has a disclosure policy.


Read/Post Comments (47) | Recommend This Article (186)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 13, 2010, at 4:00 PM, garnethill wrote:

    Are speaking of common shares or preferred?

  • Report this Comment On August 13, 2010, at 4:22 PM, TMFBomb wrote:

    @garnethill,

    Common shares.

    -Anand

  • Report this Comment On August 13, 2010, at 4:40 PM, carload wrote:

    Good article. Funny, I own one from each of your groups, for all the reasons you give (PAYX, PM, NLY).

    Along with other diversifying div-producers...

    One nit... PM is yielding 4.5%, not 7.5.

  • Report this Comment On August 13, 2010, at 5:00 PM, BearishKW wrote:

    Nice article,

    I'm new to long-term investing but feel like putting my hard-earned income into high yielding stocks has never been more important. If the market shoots down you ride it out and reinvest dividends. If the market shoots up, you have capitalized on an excellent opportunity to buy shares low with a great yield %.

    Anand, I think you're dead-on with high yielding REITS, especially CIM. I'm interested to hear what you have to say of high yield, monthly paying ETFs like IGD (currently paying 11%) and PGH (8%).

    Also, I have been building a position in ACAS. A hard-hit BDC who once payed a large dividend and is turning things around.

    There can be a lot of risk going for the high-yielders, but I think the potential long-term rewards outweigh. There's not a better time to get into dividend stocks than now.

  • Report this Comment On August 13, 2010, at 5:12 PM, 1recho wrote:

    @Bearish - be wary of ACAS. I owned it for almost 5 years before their collapse. In general, BDCs don't seem to be the most ethical guys around, e.g. AINV pays dividends by issuing more shares. That's a legal Madoff-ian scheme/scam.

    @Anand - you can keep your NLY and CIM. Risking 100% for a 16% dividend is justified only if they won't blow up in the next 6 or so years. You don't know where interest rates and spreads will be in a year, forget 6 years. Just my personal risk-averse opinion.

  • Report this Comment On August 13, 2010, at 5:53 PM, MMTInvestor wrote:

    If only PM were yielding 7.5%! Oh well, perhaps one day...

  • Report this Comment On August 13, 2010, at 6:31 PM, scanlin wrote:

    @Anand - Totally agree that diversification in a dividend portfolio is key. But why be satisfied with only receiving dividends? If you're going to take the equity risk then why not sell some out of the money calls on them, too?

    For example, PM is at 52 and you can sell a Sept 55 call for 20 cents. Sure, it's only 0.4%, but do it 8-10 times per year and that's an extra 3-4%. (There are other dividend stocks that pay better -- you can get 6%/year in call premium and still have room for some upside potential.)

    MikeS

    http://www.borntosell.com

    covered call investment tools

  • Report this Comment On August 13, 2010, at 6:32 PM, TheValueDude wrote:

    Lots of NLY articles on Fool.com lately. Time to sell?

  • Report this Comment On August 13, 2010, at 7:20 PM, sept2749 wrote:

    If you want people to take you seriously then when you write an article about dividends get the yields right! PM, WIN, then I gave up. I want - no, I need to trust you and your info. Please take it as seriously as I do. This may be entertainment for some but it's my retirement income for me and I take it seriously. Otherwise, I liked the article and the stock plays. Frankly, I always read and like your articles. Sorry to be so hard but this is serious stuff!

  • Report this Comment On August 13, 2010, at 7:36 PM, pinestholdings wrote:

    After earlier discussions, I'm going to try to be civil. NLY does not pay dividends. It distributes earnings. That is a huge difference. A quick lesson:

    Dividends are cash inflows that have already been taxed. For example, Altria pays corporate tax on its income, and then distributes leftover cash to investors as dividends. These are real dividends, paid with after-tax cash. Unless you own 80% of the company, you pay a capital gains tax on these dividends of approximately 15%. If you own over 80% of the company (which is why Buffett generally requires 80.1% to make acquisitions and leaves 19.9% in the hands of the former owners) you don't pay tax on dividends as it is considered a subsidiary by the IRS. You will receive a 1099 requiring this to be declared as dividend income on your tax return. So, owned outside of an IRA, the yield on these investments is actually 15% lower. Not so bad.

    Conversely, unlike Altria, NLY does not pay tax on its income at the corporate level. Its an investment partnership, which means it is a "pass-through" entity - just like your neighborhood LLC. Its income flows through to its investors as owners. Lets say NLY earns $100 and spends $20 on administration. The remaining $80 "flows through" to investors as if they earned the money directly. So, if there were four owners, each would owe tax as if they had earned $20 in ordinary income. Thats #1. #2, the IRS always taxes so-called investment partnerships at an elevated rate, usually around 32.5%. So even if your tax bracket is lower, since the partnership is an investment-purpose partnership, you owe that floor rate regardless of your real tax rate. Further, and this is a huge issue, the income counts to trigger the alt min tax. All this is to say that NLY's yield of 15% is actually closer to 10% after taxes. Finally, in closing, it is NOT a dividend. NLY issues a K-1 (a partnership tax return), not a 1099.

    Really important: Most of the investors here are looking to invest for retirement. NLY can trigger tax even if held in a retirement account, and can actually, in some cases, invalidate your Roth IRA, as you may not be allowed to hold partnerships in the Roth. This varies greatly by situation, but you never want to hold this stock in an IRA. Its gets very complicated and you can easily find yourself audited simply for reporting K-1 income in a Roth.

    The best way to play NLY (in my opinion) is if you have recently sold securities at a short-term capital loss. You can buy NLY, grab the dividend, and then offset the short-term capital loss with it making it effectively tax free. Without a short term capital loss (not long term, as NLY's returns are never long term capital gains), you pay 1/3rd of that 15% to Uncle Sam.

    With all that said, NLY is leveraged about 23 to 1. It has about a 21% return on equity. That means that if its cost of capital (i.e. interest rates) rise by 1% it will no longer have any return on equity. If they rise by 2% it may implode, depending on its revolving credit facilities.

    So, a very risky investment that might blow up that yields 10%? No thanks. And, its not a dividend, and it could cause a huge amount of pain if you buy it in an IRA. Its a tough stock to recommend in a page long article.

  • Report this Comment On August 13, 2010, at 10:46 PM, FoolTheRest wrote:

    @ Pines:

    Very real risks, no doubt. I have owned NLY for a while now, and I understand. But as long as interest rates remain low, I do not think about it much. It has been a nice dividend ride. I also appreciate your negative view without all of the baggage that seems to come on these postings. Refreshing indeed, and you are making my favorite site a stronger place.

    @Carload and F-Bomb (really, who can't help themselves?):

    Those are mine from the list as well. Good luck!

  • Report this Comment On August 13, 2010, at 11:56 PM, Manticorr wrote:

    Shrugs and what is your arguement against Getty REIT (GTY)? Yield ~ 8.9% seems to be channeling between $22-25. Gas station's real estate.

    Manticorr

  • Report this Comment On August 13, 2010, at 11:59 PM, Manticorr wrote:

    How is ADP a non-financial company when it does paychecks and process transactions? Does it meet the over 40 billion in revenue for AAA?

    I would guess it had the moat and repeat customers but what about the 5 or profitable business segments -alarms, security +?

    Manticorr

  • Report this Comment On August 14, 2010, at 1:10 AM, MLinvestor wrote:

    @pinetholdings: Thanks for the info. This is a very similar, if not identical, tax situation to an investment in BIP. I plan on taking a nibble on this one.

    In NLY’s 2009 10-K they state a target leverage ratio of between 8 and 12 with an actual at year end of 5.7. I think it’s ticked up to 6.1 at the end of Q2. How are you calculating 23 for leverage?

    CIM reports leverage at 1.1 at the end of 2009.

    Still investigating NLY and CIM………..no position.

    Thanks,

    Dan

  • Report this Comment On August 14, 2010, at 1:35 AM, soccerche4 wrote:

    PM and MO sell products that cause epidemic death and disease to consumers. They do so via manipulation through advertising as well as the manipulation of nicotine and other chemicals in their products. Yes, there is a similar comment for other companies, but this does not alter the reality of these companies. Are these companies in which one should invest, regardless of the upside or dividend? Personally, the answer is no. The companies and their mission are morally and ethically repugnant.

  • Report this Comment On August 14, 2010, at 2:13 AM, REITFool wrote:

    @pinetholdings:

    Annaly Capital and Chimera are real estate investment trusts (REITs), not publicly traded partnerships (PTPs). REITs are regulated investment companies, not partnerships. REITs issue 1099-DIVs to report income, not a K-1.

  • Report this Comment On August 14, 2010, at 5:21 AM, longtermgrowth09 wrote:

    Phillip Morris International actually gives the opportunnity to replicate the domestic marlboro success of the 20th century providing the same attributes that marlboro presents in the 1950s in america:

    1.Stability

    2.Growth opportunity

    3.A big yield

    4.The ability to thrive in various market conditions

    Its one of the most profitable consumer products companies with no need for technological tweets and supreme pricing power covering inflation issues.

    Its like exposing a perfect business model to a growing market like was the USA in the 50s, withouth the legal issues because smoking is fashionable in emerging markets like was in the domestic market in the 50s time at wich marlboro was a growth stock.

    Its like investing again like in the past century but exposing to new emerging markets like the USA was 50 years ago. but not any more.

    The euro is a temporary issue cause there are no guaranties that it will fall more than the dollar in the long term. and the earnings from emerging market can offset some euro declines in the case.

  • Report this Comment On August 14, 2010, at 8:49 AM, miked106 wrote:

    About as good a thread as I have seen in 11 years. More wheat than chaff, at last.

  • Report this Comment On August 14, 2010, at 10:10 AM, lctycoon wrote:

    BearishKW - PGH is a CanRoy, not an ETF. It's a great play if you think oil is going to go up long-term (I do). It acts very similarly to a REIT in that it pays out 90% of its profits from owning and drilling in the Canadian shale. Both its dividend and price depend largely on what oil does. Personally, I think it's a good play if you're a commodity bull.

    Anand, I'm curious - since you make such a big deal about float in this article, what about the ultimate float play? Say, buying TRV and PRE? Both of these companies have next to no debt, are selling below the value of their assets (PRE is selling below the cash on it's balance sheet) and both are increasing dividends by about 10% per year.

  • Report this Comment On August 14, 2010, at 1:20 PM, uflight4 wrote:

    S&P 500 Dividend Aristocrats highest dividend stocks:

    http://www.dividend.co.nr

  • Report this Comment On August 14, 2010, at 1:39 PM, gimponthego wrote:

    Excellent article (I'd like to employ a different adjective, however that hits the spot for us!) We're 64, retired since we were both 50, and trade within my IRA.

    I'm slowly changing the dynamics of our portfolio so as to incorporate more stocks with high dividends. We started with MO. Figured that was a safe bet, at least for now.

    We also allocate about 12% in GG and SLW (we watch them closely so as not to drop a mile, and waste that time and money while they climb back, that could be working for us. We have a modest portfolio..but not a cent of debt. We also have positions in AAPL, ISLN, LVS, BIG and TAYD (you'll want a line in the water when the Big One comes!) These stocks will be changed,as mentioned earlier, to incorporate some with good dividends. Any input in that regard would be appreciated! John / Joan / San Antonio Good Luck To One And All!

  • Report this Comment On August 15, 2010, at 11:31 AM, Mstinterestinman wrote:

    I personally feel that you shouldnt put too much emphasis on yield 3 or 4% with a strong growth rate can be 6% yoc in the next ten years easily. While 6 or 7% with negative revenue growth probably won't grow the dividend much more IE Utilities,Big Tobacco ETC.

  • Report this Comment On August 15, 2010, at 4:02 PM, TMFBomb wrote:

    All,

    Thanks for the great discussion so far. Let me address some points.

    1) Apologies for the 7.5% dividend yield listed for Philip Morris International...it's 4.5%...typo on my part. It will be fixed shortly. As an owner of the stock, I can only wish it was 7.5% :)

    2) Re: Annaly, Chimera, and Crexus...I tried to stress this in the article, but to reiterate, these are very complex companies -- in terms of understanding their business models, determining the sustainability of the dividends, and working through any tax consequences. A great dividend portfolio is tailored to the individual. That can be simply buying and holding some great ETF's or mutual funds. I mention these REITs only for those who have the time, inclination, and ability to do the proper due diligence before buying. This is even more important the closer you are to retirement age and the more you rely on a steady stream of dividends.

    Fool on,

    Anand

  • Report this Comment On August 15, 2010, at 4:11 PM, TMFBomb wrote:

    American Capital (Nasdaq: ACAS) is popular among our CAPS members:

    http://www.fool.com/investing/international/2010/08/14/these...

    Like my warnings on the REITs like Annaly, this is a complex company to analyze...you need to have a good feel for its portfolio of investments(it's a business development company) and its debt situation before investing . It's beaten down but that doesn't mean it can't go to zero.

    -Anand

  • Report this Comment On August 15, 2010, at 7:02 PM, snapcap wrote:

    PGW and other CanRoys will be modifying their corporate structure in 2011 due to a change in Canadian tax law. Before making an investment in these high yielding units, make sure you understand the consequences of the new tax laws.

  • Report this Comment On August 15, 2010, at 7:54 PM, h53echo wrote:

    very good article. I have concentrated on REITs for a while and have had my best success with Realty Income, (O). They pay monthly and have increased their dividend each quarter for years. I reinvest the dividends. Any suggestions.

    I also recently bought INTC in the mid $19's for the 3% payout and growth potential.

    Keep up the work and idea sharing.

  • Report this Comment On August 15, 2010, at 8:38 PM, rockbox64 wrote:

    Echo. INTC: Value stock or value trap? Its my second biggest position in my SEP and I think it might see $17.80 or so before its all said and done (Labor Day). Not a lot of projected EPS growth thru 2012. Your thoughts?

  • Report this Comment On August 16, 2010, at 11:55 PM, MRBillsnutjob wrote:

    you might want to check AGNC also similar to nly just a thought ass always do your home work

    Cheers and best of luck

  • Report this Comment On August 16, 2010, at 11:58 PM, MRBillsnutjob wrote:

    sorry very bad typo my bad forgive my fat fingers

  • Report this Comment On August 17, 2010, at 11:34 AM, ikkyu2 wrote:

    I can't keep up with the Fool's deluge of articles about the dividend aristocrat - NLY, always mentioned in the same breath as companies like Exxon and Philip Morris that have been raising their dividend for decades. Oh wait, NLY's not a dividend aristocrat, it's an REIT - levered to the U.S. residential housing market, no less - and its dividend is taxed as unearned income, forfeiting the special capital gains rate.

    I keep posting the following as a reply to these fatuous, ill-considered, and may I say glib articles. Anyone who invests in NLY does so at their peril:

    No article intended for laypersons about Annaly Capital is complete, in my opinion, without the following components:

    1) The tax treatment of Annaly's "dividend," which is not eligible to be taxed under the "capital gains and dividends" rate, but instead is taxed as ordinary income.

    2) The percentage of assets under management that would have to default in order to zero Annaly's earnings. I could tell you - but I suspect you'd find it unbelievable.

    3) A clear, understandable analysis of the downfall of Novastar Financial (NFI) and New Century Financial (NEWC), and why Annaly is not (or is) in danger of replicating it. New Century in particular went from an apparently-healthy company with a 35 % dividend yield, to a bankrupt company in receivership with a stock value of 0.0, in less than 6 weeks.

  • Report this Comment On August 18, 2010, at 6:06 PM, dadshome wrote:

    I am concerned/confused as to what I can own in an IRA. PGH is a Canadian Royalty Trust and it's "dividends" are subject to a 15% automatic "Foreign Tax" withholding. Who withholds that money and is there any way to get any or all of it back? And is this an example of a holding that is not suitable for an IRA?

    Similarly, are REITs like NLY not ok in an IRA? What about an ETF like VNQ?

    Finally, I've also looked at master limited partnerships (MLPs) like BX.

    Is there any way to include any of these in an IRA or should any of them be held only in a taxable account?

  • Report this Comment On August 19, 2010, at 2:17 AM, Jehnavi wrote:

    Another great paying dividends is relatively unknown TRP listed on the New York and Toronto. Are currently around 3.5% cent to return and has a long dividend increases (just added another 5 days ago). If youre interested heres a quick overview of the TRP:

    http://www.financemetrics.com/

  • Report this Comment On August 20, 2010, at 12:57 PM, MoovinAverge wrote:

    How about NZT?

  • Report this Comment On August 20, 2010, at 2:06 PM, teisho wrote:

    @dadshome ... I'm a Canadian tax specialist so here's the answer to you tax question.

    The tax is withheld by the company and remitted to the Canadian tax authority (The Canada Revenue Agency.) The reason the withholding is ONLY 15% (and not the 30% prescribed) is because of the Canada-US tax treaty. You can get this back by completing Form 1116 with your 1040 and claiming the foreign tax credit. You CANNOT get the money back from Canada.

  • Report this Comment On August 20, 2010, at 2:51 PM, bk57 wrote:

    @dadshome, to follow up on teisho's response on canroys and foreign tax, I believe you can get the tax back only if the security is held in a taxable account. you need form 1116 only if the tax paid is over 600 /yr.

    also, reits are great for ira since the reit distributions are taxed as ordinary income as are the ira distributions (when you actually take them).

    mlp's are best for taxable acts for 2 reasons: 1. all distributions are not taxed; and 2. UBTI-some mlp's income may be classified as ubti, for which there is a limit of $1000 in your combined iras, after which the excess ubti is taxed. of course if you have mlp's in an ira you don't have the messy k-1 to deal with (but you don't get the tax benefit either).

  • Report this Comment On August 20, 2010, at 3:06 PM, turnipseedtales wrote:

    @dadshome

    And you can only file for the foreign tax credit if the stock is in a taxable account.

  • Report this Comment On August 20, 2010, at 3:58 PM, dadshome wrote:

    Thanks tie, bk, and jem.

    This is great info. I'm going to continue checking this thread to see if more folks have additional insights into my questions.

    Jeh mentioned TRP. Is this another example of a company whose dividends would be subject to the automatic Foreign Tax withholding like PGH?

    Is an ADR then the best way to hold a position in a foreign company in an IRA?

    Thanks again. Best always. dad

  • Report this Comment On August 20, 2010, at 7:27 PM, KZMike wrote:

    WOW. . . this is a great thread. . . learned a ton and had some mis-conceptions 'fixed'. I have WHX, an 'American Trust'. . . with the 'dips' this week it is @ a 15% yield. I am new to MF and obviously do not have the depth of knowledge I've seen, so I would like to see what, so I am not going to assume it is paying a 'dividend'. . .

  • Report this Comment On August 20, 2010, at 8:59 PM, Imaginos1888 wrote:

    You might also want to check out:

    ATO - Atmos Energy

    Yield is almost 4.7% and it's down a bit right now

    EXC - Excelon

    Yield over 5% even after its recent run-up

    As for WHX - the ex-dividend date was Aug 28 and it dropped over $2 after paying a 74 cent dividend. Historically, it always seems to do that.

    Most stocks seem to drop right after the dividend date, making that a good time to buy. You'd have to pay tax on the dividend, but no tax for getting a lower stock price.

    ------------

    Nobody expects the Spanish Inquisition!!

  • Report this Comment On August 23, 2010, at 4:03 PM, jmweese wrote:

    @dadshome,

    Actually, you can file a 1116 Form if you have less than $600 in tax and I, as an accountant, would recommend you do so as it reduces your tax directly but it depends on your income and what capital gain rate you are at. If you do not earn enough income to have enough tax to take the whole credit, then you can carry over the tax credit until you do earn enough income. Even if the credit is for $15, it still reduces your tax directly.

    As for ADRs in a Roth or other IRA, I have used them as a way to access foreign companies BUT, again, some companies will withhold from your dividend payment and if the ADR is in an IRA, you cannot file a Form 1116 to get a tax credit for the amount paid.

    I would not recommend holding a MLP in an IRA. I have seen it done but it can hurt you come tax time for reasons previously explained by other posters.

    @pinestholdings, thank you for your detailed conversation concerning NLY. Have you ever checked out SeekingAlpha?

  • Report this Comment On August 23, 2010, at 5:36 PM, dadshome wrote:

    jm,

    Thanks for your insights. Currently, I only have IRAs and a 403b. I have some ADRs and ETFs in the IRAs. The foreign stock with the withholding issues appears now to be a mistake. I recently unloaded my only MLP and invested the proceeds in a REIT.

    Because I'm so close to retirement I've been trying to build the income generating power of my retirement portfolios. Unfortunately, those investments have lost value along with other equities. Dividends have been cut and some like WM and NEW went to zero. (I did sell both before that happened but still suffered some losses that are unrecoverable within an IRA.)

    Another interesting consideration is Closed End Funds. I picked up one a few years ago that shows good dividends, but with its lose of value I'm barely breaking even. What do you think about Closed End Funds in an IRA?

    Finally, I'm considering opening a taxable account. I'm considering TIPs vs CDs and maybe that's where I could buy those foreign stocks and MLPs. Any thoughts?

    Best always.

  • Report this Comment On September 24, 2010, at 11:29 AM, gimponthego wrote:

    My wife and I retired when we were 50. I started receiving disability do to a progressive degenerative disease. If I sell my shares today (9-24-10) @ $18.45..I purchased them at $17.05. They just sold..a nice profit. If I understand, I can buy the same number of shares back before 9/30 at a lower price than I originally paid and still receive the dividend? I'm unclear on the dynamics concerning this aspect of dividends.

    We started trading within my IRA 14 years ago and are getting serious about stocks that pay good dividends...MO..NLY,etc. Any information will certainly help. Thanks, Johnny

  • Report this Comment On November 22, 2010, at 2:50 PM, rivendell1709 wrote:

    To the best of my research, and as per their web site,

    "Annaly has elected to be taxed as a real estate investment trust (REIT)." Also an email from their investor relations cell says the following:

    "Taxation of Dividends

    Dividends distributed by our Company are taxed as ordinary income. You will receive a Form 1099 at year end for tax reporting purposes generally by February 15th of the following calendar year."

    Is something incorrect in the article Or is there more information that needs to be considered along with what is there in the company website ?

    Thanks

  • Report this Comment On September 27, 2011, at 6:37 AM, SandraKeil wrote:

    Now I know where to invest my funds. You have given useful information

    http://www.cashtilpay.co.uk/

  • Report this Comment On January 13, 2012, at 7:45 AM, Stamfordprivee1 wrote:

    Great post you have shared. It educated me much about dividend investment and I think it can guide an investor well in such for getting good results.

    http://www.stamford-privee.com

  • Report this Comment On January 13, 2012, at 9:21 AM, DJDynamicNC wrote:

    ADP is a cornerstone of my portfolio. It is the business behind business, and is well managed with a strong balance sheet (though I agree with @Manticorr above that it's odd to consider it a "non-financial" company when it deals all day with tax policies, payroll, and 401(k) asset management). I expect to hold ADP for decades.

  • Report this Comment On February 03, 2012, at 6:28 AM, SFOasia wrote:

    Excellent post.You have shared a great discussion.Your idea is really suggestive.Keep posting such nice post.Thanks for this informative post.

    http://sfoasia.org/

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