Return of Capital Dividend Stocks

[Mephistopheles]

Let's say I want to generate income in my portfolio without paying dividend or income tax. How would one go about finding or browsing through companies that pay out "return of capital" dividends for which your cost basis goes down but you owe no tax on the income? I own some APTS and CLPR, also WMB which all are such.

 

I was initially under the impression that this is only a feature of MLPs but I guess not. Would love to hear your thoughts on the subject.

 

Context: I just signed a lease to move to NYC next week, so taxes have now become my immediate concern

[Gregmal]

No opinion or anything to add on the above other than that its a great little gimmick, but congrats on the place!

[Mephistopheles]

6 minutes ago, Gregmal said:

No opinion or anything to add on the above other than that its a great little gimmick, but congrats on the place!

Thank you! Will have to have you over for a beer

[JRM]

I assumed this was just an MLP thing.  I checked with WMB and KMI and they both appear to qualify.  On Kinder Morgan's website they say this:

 

"A corporation’s quarterly distribution of cash is characterized as a taxable dividend (qualified dividend) to the extent it comes out of the corporation’s earnings and profits (“E&P”). Any part of the distribution that exceeds E&P is treated as a non-taxable return of capital (non-dividend distribution) which reduces the shareholder’s basis in the stock. If the return of capital exceeds the stock basis, the excess is treated as a capital gain."

[ERICOPOLY]

4 hours ago, Mephistopheles said:

Let's say I want to generate income in my portfolio without paying dividend or income tax. How would one go about finding or browsing through companies that pay out "return of capital" dividends for which your cost basis goes down but you owe no tax on the income? I own some APTS and CLPR, also WMB which all are such.

 

I was initially under the impression that this is only a feature of MLPs but I guess not. Would love to hear your thoughts on the subject.

 

Context: I just signed a lease to move to NYC next week, so taxes have now become my immediate concern

 

APTS pays out lots of taxable income but it all goes to the preferred stock that people seem to hate so much.  The common then gets additional capital gains in return.

 

APTS then appears to issue shares and pay out the cash proceeds out as a non-taxable dividend.

 

So I presume if you screen for stocks with a lot of preferred in the capital structure you may then find more companies doing this.

 

 

Edited November 23, 2021 by ERICOPOLY

[Gamecock-YT]

In my experience, more likely to find these in private investments than publics. Maybe put a news alert for special dividends? 

[IceCreamMan]

You might find some closed-end funds doing this. Some of them target a particular distribution yield. If the securities portfolio doesn't yield enough, the excess distribution is a return of capital. You could look at a closed-end fund database and sort by highest yield as a place to look.

[Mephistopheles]

Thanks for all the replies. So what I'm understanding is that if distribution > accounting profit, then that distribution is tax free. Will try to screen for more of these stocks and post them here if I find them.

[tytthus]

KNOP has a 12% distribution with a large portion of it RoC.  (I think there is a thread in investing ideas here)

 

A few BDCs I’ve owned in the past have had a mix of unqualified dividend and RoC