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NorthStar Realty Finance Corp. Message Board

  • quadruplemalt quadruplemalt Jan 20, 2009 8:47 PM Flag

    stock dividends

    What's the big deal with stock dividends?

    1.) If NRF has investment opportunities the new shares won't be dilutive, as the cash invested will generate additional income;

    2.) Those who want cash dividends can sell the stock when they receive it;

    3.) What's the difference between stock dividend and DRIP?

    4.) Given the payout regs, REITs can't retain capital - which is a problem in this market of not much new capital - thus the stock dividend compliance concept is a godsend;

    5.) However you slice it, paying tax once is more efficient than C corp dbl taxation.

    The world is changing. If you don't believe Hamamoto is on his game you shouldn't be in the shares. He knows everything that is discussed on this board and has mediated competing interests to come up with his strategy.

    Quad

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    • quad-insightful and far reaching thinking. p.s. i get 30 free trades/month through banc of america-lot more than i need since i'm an investor.

    • >You accomplish nothing by selling but reducing your stake. Cutting a six slice pie into eight, then eating two, does not mean your pie is the same as it was just because there are six slices left.<

      Zorro, this is a dilution argument, not a tax argument. A share dividend, if sold, is equal to a cash dividend for the recipient. The share portion of the dividend has value - your comments suggested it was zero. Whether earnings or BV dilution occurs via the shares issued to pay the dividend is complicated and depends on what they do with the cash retained.

      >Yes, they are. They have the cash flow and liquidity to continue paying cash dividends based on funds flow, just like they did for the first three quarters of 2008. They just don't WANT to.<

      They had the cash and opportunity to make a bunch a loans at the top of the bubble, but they didn't want to.

      Quad

    • "My CPA has bascially told me that I shouldn't bother making any donations to charity because of the AMT."

      Contributions are deductible from regular and alternative minimum taxable income, and the percentage limitations work off the regular income, so there's no negative effect there. Phase-outs don't apply for AMT. I seem to recall there was one unusual situation where electing not to itemize worked better, but I don't recall it off the top of my head.

      So I'd be inclined to gently challenge your CPA and ask him (or her) to explain their position on contributions.

    • Quad,

      It's nice for the company. It's also fine for my shares in my 401(k) account.

      It's very bad for my shares in my taxable account. It's real simple.

      No dividend would be better . . . but you have those pesky REIT rules.

      Zorro,

      I won't claim to fully understand the AMT. But I can tell you I don't like it. My CPA has bascially told me that I shouldn't bother making any donations to charity because of the AMT.

    • Correction.
      NRF is doing this because they want to and now allowed to.
      They DO NOT HAVE TO.
      Kurt

    • "Those who don't want the distributed shares can sell them. It's silly to say that's zero. It's the same as cash minus one transaction fee of, say, eight bucks."

      You accomplish nothing by selling but reducing your stake. Cutting a six slice pie into eight, then eating two, does not mean your pie is the same as it was just because there are six slices left.


      "They're not doing this because they want to."

      Yes, they are. They have the cash flow and liquidity to continue paying cash dividends based on funds flow, just like they did for the first three quarters of 2008. They just don't WANT to.

    • More ordinary income moves you away from AMT, the regular rates are higher than the AMT rate (for high income taxpayers). For 28% bracket guys, it's neutral, regular taxable income and alternative minimum taxable income are increased equally, no effect.

    • I disagree with both Ag and Zorro, which is mucho daunting, for sure.

      If NRF has an obligation to pay a dividend to comply with distribution requirements a stock dividend is a godsend.

      Those who don't want the distributed shares can sell them. It's silly to say that's zero. It's the same as cash minus one transaction fee of, say, eight bucks.

      The tax burden flows to the shareholders by virtue of company profitability and IRS regs. The selection of shares as the mode of distribution is a coping strategy in a credit environment in extremis.

      I think it's silly to criticize NRF for making mandatory distributions in a manner designed to enhance the company's viability and future prosperity. They're not doing this becasue they want to. The same conservatism which was hailed when Ham avoided the CRE bubble and demurred chasing deals is what motivates this strategy.

      The world is changing. Not only companies but shareholders need to adapt.

      Quad

    • >>Boy... I agree with this. Inflation is coming (count on it).<<

      I agree with this.

      >>Hmmm, unless I missed my guess, the current common dividend is effectively zero (tax cost of the dividend less cash receieved).<<

      I agree with this too, unless you are in a high-tax jursidiction. Also, stinks if you are bumped into AMT land or have other bad consequences because of the increased "income" caused by distributing additional shares.

    • If you don't think the stock will be higher by 4/15/10, when taxes are due, get out.

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