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What is "dividend harvesting"?

 
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Old 27-11-2006, 12:19 PM   #1
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What is "dividend harvesting"?

Hi All,

Was reading a thread on somersoft (Lance Spicer's The tax solution - Somersoft Property Investment Forums) and came across the term "dividend harvesting". Does anyone know what this means?

John.
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Old 27-11-2006, 12:58 PM   #2
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Originally Posted by johnnyb View Post
Hi All,

Was reading a thread on somersoft (Lance Spicer's The tax solution - Somersoft Property Investment Forums) and came across the term "dividend harvesting". Does anyone know what this means?

John.
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.

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Old 27-11-2006, 01:11 PM   #3
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Reinvestment

...

3. In terms of tax gain/loss harvesting, it is the realization of losses to offset a capital gains liability.
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.
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Old 27-11-2006, 01:17 PM   #4
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Originally Posted by johnnyb View Post
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.
Yep....It's a bit "tricky" jargon...

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.
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Old 27-11-2006, 01:20 PM   #5
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Thanks again. Gives me something else to add to my list of things to understand before I die
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Old 27-11-2006, 01:28 PM   #6
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Thanks again. Gives me something else to add to my list of things to understand before I die
hahahahahahaa = good one !!!
Do not break your brain....
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Old 27-11-2006, 11:17 PM   #7
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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.
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Old 28-11-2006, 01:05 AM   #8
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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...
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Old 28-11-2006, 06:37 AM   #9
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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.
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Old 28-11-2006, 10:04 AM   #10
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Thanks for your replies. In the past I've seen things like the Dividend Trading Strategies, Share Trading, dividends, dividend stripping, shares, ex-div, which I guess people use for this sort of thing.

On the surface it looks like a lot of work, but I guess if the payoff is good then it could be worth it.

Last edited by Sim; 28-11-2006 at 11:16 AM. Reason: Fixed URL
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