Saturday, July 18, 2009

Real-World Series 7

Ok, let's see if you can find the real-world significance of the following information. I just logged into my online brokerage account in order to write the previous blog post. When I reviewed the transactions over the past 14 days, I found something that illustrates an important testable point. See if you can explain the following:

07/09/2009 15:57:52 Sold 50 EQR @ 19.51 $965.48

07/10/2009 02:10:48 ORDINARY DIVIDEND (EQR) $36.19

If the stock was already sold on July 9th, why would I receive a dividend on July 10th? And, for extra credit, why is it an "ordinary" dividend?


  1. Because it takes 3 days for the sale to process.

  2. The dividends are declared before he sold with payable on so and so day for shareholder on so and so date. If you sell the share after the holding date you will still receive the dividends.

    They are ordinary dividends as the share might be REIT's and they are usually ordinary dividends and not qualified. Half the tax is not paid by the company so holder of the stock has to pay them.

  3. Jampers--you've been studying and/or you already knew your stuff.
    EQR is a REIT, Equity Residential . . . and, boy, has the share price been ravaged of late. Then again, it still pays the dividend, which is ordinary. REITS get a tax break on the dividends they distribute, so shareholders pay ordinary income rates. GE, for example, pays tax on all profits, so shareholders (for now) pay no more than 15% tax on the dividends.

  4. On that note.. will you explain REITS in detail? I'm not fully understanding the difference between them and CMOs...

  5. Some REITS provide financing for real estate projects, but the ones I'm most familiar with are just big real estate operations that sell units of ownership/stock to investors. A REIT owns office buildings, apartments, warehouses, shopping malls, storage, etc. and passes out 90% or more of the net income each year to investors. Investors get to participate in these big real estate operations--enjoying rental income and capital gains when properties are sold--without having liquidity issues. You can sell shares of a REIT as fast as you can sell shares of GE or MSFT, unlike owning an apartment building or warehouse yourself. CMO's are purely financial products made up of mortgage-backed securities. A REIT is a company with real estate operations, making money from rents and capital gains when properties are sold at a profit. They pay out fat dividends when they're profitable, but investors pay ordinary income rates on those dividends.