How to avoid a dividend?

-dom · Mar 12, 2014

Hey everyone,
I currently own a stock that pays dividends. Because of the 30% tax on dividends I would like to avoid receiving dividends and instead sell the stock before dividend date and buy it back after the price drops as commissions amount to less than tax.
How exactly would i go about doing this? When do I have to sell the stock to avoid dividends and what is the soonest that I can buy it back after the price is adjusted? I'm familiar with general terms such as ex-dividend date, etc. but I don't know how to put it all together.
Thanks for help.

GoldenMember · Mar 12, 2014

a-c-c-o-u-n-t-a-n-t

NoDoji · Mar 12, 2014

-dom said:
Because of the 30% tax on dividends I would like to avoid receiving dividends and instead sell the stock before dividend date and buy it back after the price drops as commissions amount to less than tax.

Many years ago a businessman shared these words of wisdom with me (numbers modified slightly to reflect your situation):

"It's better to net 70% of something than 100% of nothing."

-dom · Mar 12, 2014

Are you trying to imply that there is a high risk of price moving against me while I engage in such behavior and in the end being worse off? I am aware of such risk but I don't think its very high with this particular stock that I have in mind.

OneChicago · Mar 12, 2014

You could carry your delta exposure in our NoDivRisk contracts that provide the same economics as holding the stock but there is no dividend payment.

newwurldmn · Mar 12, 2014

-dom said:
Hey everyone,
I currently own a stock that pays dividends. Because of the 30% tax on dividends I would like to avoid receiving dividends and instead sell the stock before dividend date and buy it back after the price drops as commissions amount to less than tax.
How exactly would i go about doing this? When do I have to sell the stock to avoid dividends and what is the soonest that I can buy it back after the price is adjusted? I'm familiar with general terms such as ex-dividend date, etc. but I don't know how to put it all together.
Thanks for help.

if you are sitting on a gain, selling would create a taxable event. this taxable event will be on the total gain, not just the dividend. so you could be paying far more in taxes today. also, you could be paying short term gains vs qualified dividend taxes.

it's hard to avoid taxes in trading unless you are losing money.

-dom · Mar 13, 2014

My countries tax law has a loophole when it comes to capital gains tax. The same can't be said for dividends tax plus there is a US withholding tax when it comes to dividends.

Oh, and thanks OneChicago. I'll look into those futures.

OneChicago · Mar 13, 2014

-Dom
It was not clear when I responded that you were a non-US resident subject to tax withholding on US source dividends. You may be aware that the US Treasury has issued proposed rules expanding their definition of 'dividend' to include 'dividend equivalents' for purposes of tax withholding. All derivatives in the US, whether OTC or exchange traded, options or futures - including our Single Stock Futures - whose value is determined in any manner by referencing the underlying dividend (actual or expected) will be subject to tax withholding for non-US citizens after December 31, 2016.

Best

David

NoDoji · Mar 13, 2014

-dom said:
Are you trying to imply that there is a high risk of price moving against me while I engage in such behavior and in the end being worse off? I am aware of such risk but I don't think its very high with this particular stock that I have in mind.

The point I was making is that it seems irrational (to me) that you want to give up 100% of a dividend to avoid giving up 30% of it via taxes.

onelot · Mar 13, 2014

NoDoji said:
The point I was making is that it seems irrational (to me) that you want to give up 100% of a dividend to avoid giving up 30% of it via taxes.

if he's holding up to the day before ex-div, the dividend has already been priced in. this is why stocks gap by their div amount on their ex-div date. so, if he doesn't have capital gains, he's giving up 30% of a 100% priced in div.

@op, if you moc exit on the day before ex-div, and moo entry the morning of, you circumvent the tax. you do have gap risk though (any gap more than div amt), but this is highly stock specific. if you have a large enough basket though, gap risk usually balances out over time and can usually be mitigated via index hedging if the portfolio is highly correlated. you'd have to figure out how stable your stocks are, but if truly low vola, doing it this way will more than likely will be cheaper than paying a stock futures spread.