How can dividends exceed earnings

A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the adjusted cost basis of your stock. For information on basis of assets, refer to Topic No. A distribution generally qualifies as a return of capital if the corporation making the distribution doesn't have any accumulated or current year earnings and profits.

Once the adjusted cost basis of your stock has been reduced to zero, any further nondividend distribution is a taxable capital gain that you report on Form , Sales and Other Dispositions of Capital Assets and Schedule D Form , Capital Gains and Losses.

Regulated investment companies RICs mutual funds, exchange traded funds, money market funds, etc. Capital gain distributions are always reported as long-term capital gains. For information on how to report qualifying dividends and capital gain distributions, refer to the Instructions for Form and Form SR.

Form DIV should break down the distribution into the various categories. If it doesn't, contact the payer. You must give your correct social security number to the payer of your dividend income.

For more information on backup withholding, refer to Topic No. You'll need to sell the shares, then wait a couple of business days for the trade to settle before you can initiate the cash transfer.

Make sure to plan accordingly. This can vary greatly from one industry to the next, and even from one stock to the next in similar industries. This index, which tracks just over of the largest U. As you can see, it can fluctuate significantly from one period to the next, with the dividend yield falling in the second half of because of the rebound in stock prices and because many companies cut their dividend payments due to the recession.

Individual industries, such as utilities and real estate, often pay higher dividends due to the stability of their revenues and their slower rate of growth, while more volatile industries, such as consumer discretionary goods and technology companies, generally pay much smaller dividend payments, as seen below.

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