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What is "dividend harvesting"?

Discussion in 'Shares' started by johnnyb, 27th Nov, 2006.

  1. johnnyb

    johnnyb Well-Known Member

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  2. Tropo

    Tropo Well-Known Member

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    Reinvestment
    Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash.

    1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares.

    2. In terms of mutual funds, it is the reinvestment of distributions and dividends to purchase additional units of that fund.

    3. In terms of tax gain/loss harvesting, it is the realization of losses to offset a capital gains liability.
    This is definitely a great way to significantly increase the value of a stock or mutual fund. In the case of stocks, investors can use dividends to buy additional shares instead of receiving payments in cash.

    Reinvestment financial definition of Reinvestment. Reinvestment finance term by the Free Online Dictionary.

    ;)
     
  3. johnnyb

    johnnyb Well-Known Member

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    Thanks. I did a google but couldn't find anything useful that matched "dividend harvesting".

    So does dividend harvesting refer to point 3 only?

    To me the term "harvesting" implies that you are taking something away, so it doesn't make sense that it would refer to reinvesting dividends. Then again, I have been wrong before :).

    John.
     
  4. Tropo

    Tropo Well-Known Member

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    Yep....It's a bit "tricky" jargon...:rolleyes:

    Also you may consider below tax Gain/Loss Harvesting def :

    Tax Gain/Loss Harvesting
    A process of selling securities at a loss to offset a capital-gains tax liability. It is typically used to limit the recognition of short-term capital gains, which are normally taxed at higher federal income-tax rates than long-term capital gains. Also known as "tax-loss selling".
    For many investors, tax gain/loss harvesting is the single most important area for reducing taxes now and in the future. If properly applied, it can save you taxes and help you diversify your portfolio in ways you may not have considered. Although it can't restore your losses, it can certainly soften the blow. For example, a loss in the value of Security A could be sold to offset the increase in value of Security B, thus eliminating the capital-gains tax liability of Security B.
    ;)
     
  5. johnnyb

    johnnyb Well-Known Member

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    Thanks again. Gives me something else to add to my list of things to understand before I die :eek:
     
  6. Tropo

    Tropo Well-Known Member

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    hahahahahahaa = good one !!!:D
    Do not break your brain....:p
     
  7. BladeCA

    BladeCA Member

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    My understanding of dividend harvesting ( stripping) is when one buys an amount of shares just prior to a stock going ex dividend and then selling it after ex div day. This gives the investor the dividend + capital growth + any franking credits and usually only having capital tied up for a short period of time.
     
  8. coopranos

    coopranos Well-Known Member

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    It does not seem to make sense that a dividend reinvestment plan would have any benefit whatsoever - the dividend is still treated as income in the year it is received, regardless of whether it is reinvested into the same shares, different shares, or vegemite.
    The only possibility is when there is an arrangement with the company whereby instead of dividends you receive more shares of the company (and it literally replaces the dividend, not a reinvestment, so you dont get fraking credits as there is no income). Very few companies have such an arrangement set up (maybe 5 or 6 listed to my knowledge), and there is no arrangement for these with the ATO, and they clearly state that the Commisioner could declare that a dividend was received anyway.
    Dividend Harvesting must be something different to reinvestment, or it would be a somewhat useless term...
     
  9. SlyDog

    SlyDog New Member

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    BladeCA has nailed it.

    Investment is a share usually up to 2 mnths prior to going ex-div, then selling soon after. There are many vaiations, but the premise is that shares about to payout a dividend will tend to rise to reflect that additional value. In a bull market the drop after ex-div will usually be less than the value of the dividend, therefore making capital gain and dividend in 2 mnth period.
     
  10. johnnyb

    johnnyb Well-Known Member

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    Last edited by a moderator: 28th Nov, 2006
  11. Redwing

    Redwing Well-Known Member

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    I was just going to suggest that site JohnyB :) , I thought Dividend Harvesting was the same thing?

    ..if you look at AussiestockForums, the owner of that site posts as Rozella

    Aussie Stock Forums