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Stock and dividends

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Investor A owns $1,000 worth of stock that does not pay a dividend. Investor B owns $1,000 of an equivalent stock that, after paying a dividend, becomes an investment in stock and cash: $900 in stock and $100 in dividend income. If the capital gains tax is lower than the tax on dividends, which investor has the better position: Investor A selling 10% of the stock to make an equivalent homemade dividend, or investor B?

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This solution evaluates the difference between a stock that does not pay dividends and one that does pay dividends.

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Investor A has the better position as he will pays less in capital gains tax than investor B will pay in ...

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