Topic
Dividends
The income side of a portfolio: which yields are worth trusting, what a cut does to your income, and where dividend payers belong for tax.
A dividend yield is a fraction with two moving parts. It rises when the payout grows and it rises when the share price falls, and the second kind of rise is often a warning. Tell the two apart before you trust a yield, then look at the cut case study to see what a smaller payout does to an income portfolio.
The dividend yield calculator works out current yield, yield on cost and yearly income from any price and payout.
Where the shares sit matters as much as which shares they are. Qualified dividends in a taxable account are taxed at the lower long-term rates once the holding period is met, while most REIT payouts are taxed as ordinary income, which is why the placement comparison argues for putting some payers inside an IRA and others outside it. For someone choosing between a fund and a handful of stocks, the guide on dividend ETFs sets the two side by side with the income worked through.
Strategies
Case study
Case Study: What One Dividend Cut Does to an Income PortfolioCap every holding, check dividend coverage by free cash flow each year, and treat a very high yield as a question to answer first.
Comparison
Dividend Stocks in a Taxable Account or an IRA: Where Each BelongsHigh-yield payers taxed as ordinary income belong in an IRA; qualified dividend payers cost less in a taxable account.
Guides
Definitions
- Dividend aristocrat
A company in the S&P 500 that has raised its dividend every year for at least 25 consecutive years, as defined by the index rules of S&P Dow Jones Indices.
- Yield on cost
The annual dividend per share divided by the price you originally paid for the share, as opposed to current yield, which divides the same dividend by today's price.
Calculators
- Dividend Yield Calculator
Current yield, yield on cost and yearly income from a dividend, a share price and your share count.