7 Debunked Dividend Myths
One of the topics I’m constantly asked to explain is the concept of dividends, ex-dividends and other similar questions; often by people who think getting into a stock simply for the special dividends and getting out right away is a good idea. You’re only doing yourself the favour of turning your principle into a taxable liability.
I thought about doing more to debunk dividend myths, but why lift a finger when The Motley Fool has already done a 2 part story to debunk 7 common dividend myths. I’ll summarize them here.
- Stock prices do not adjust downward when dividends are paid.
- Only the stock price is adjusted.
- All dividends are taxed at the special lower rate.
- Everything is reported to you correctly on the 1099-DIV form.
- Everything called a dividend is really a dividend.
- Stock splits are not dividends.
- I can buy just before the ex-dividend date, catch the drop in price, and record a capital loss.
Be sure to read part 1 and part 2 for the full details and explanations! A note to Canadian readers that some of these facts are geared towards American investors. But there are still tidbits well worth your time, especially if a large portion of your dividend companies are American!
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