7 things you may not know about dividends
Amy C. Arnott of Morningstar
I recently dug into the pros and cons of dividend reinvestment. Readers of the article sent me questions about other dividend-related topics. Here are some of the most common questions I got:
What should I know about reinvested dividends and wash sales?
Reinvesting dividends means purchasing additional shares, which can complicate sales or tax-loss harvesting in taxable accounts. The IRS’ wash-sale rules prohibit claiming a tax loss after a sale if you’ve purchased the same or “substantially identical” security 30 days before or after selling. You could wait at least 30 days after a dividend before selling, and make sure to sell at least 30 days before the next dividend, but to reduce hassle, it’s probably best not to reinvest dividends for holdings that you plan to sell soon.
If I reinvest dividends, will I end up with fractional shares that are difficult to sell?
Reinvesting dividends typically means purchasing small amounts that get added to your existing stock/fund position. You’ll probably end up with fractional shares, where you own only part of a share. Most major brokerages let you sell fractional shares, but you typically need to sell fractional shares as a market order, and liquidating fractional shares may take an additional day.