In a previous blog, I noted that with dividends, you don't "get" anything because whatever gets paid to you gets reduced in the price per share. I.e., if a $100 stock pays a $5 dividend, you're left with $95 in "equities" and $5 in "cash". The same $100, and thus, getting nothing.
This left me pondering... what's the big deal then??
Luckily, I think I stumbled on the answer inadvertantly while studying for my Series 7.
And I believe the answer is this...
"Dividend Exclusion" -->
If a corporation owns less than 20% of another corporation --> it does not have to pay taxes on a whopping 70% of the dividend income it receives. If the ownership is between 20 and 79%, then it's excluded from 75%; and if the ownership is 80% or above, the exclusion is 100%.
*That was from an online source. My Series 7 notes say something slightly different. If it's less than 20%, the exclusion is 70%; more than 20%, the exclusion is 80%.
But I am certain about the 70% minimum. So by now the answer is obvious. Using the example above, a corporation would only have to pay tax on $1.5 of the $5 dividend. Which could add up to millions of dollars.
The big boys are the real influences on stock prices. And that my friends, is the big deal with dividends.