Maximizing Dividend Reinvestment: A Tax Strategy to Consider

Amy Arnott, Morningstar Inc. portfolio strategist, advises investors to reconsider their dividend reinvestment strategy. Dividend reinvesting works for long-term growth, but not for generating income or simplifying taxes. Tax treatment differs between taxable and tax-deferred accounts, with qualified and nonqualified dividends also playing a role. Recordkeeping is required, and considerations differ for stock dividends vs. fund dividends. The final takeaway is to prioritize goals when deciding whether to reinvest dividends.

Herzfeld Credit Income Fund (NASDAQ: HERZ) has announced significant changes to its Dividend Reinvestment Plan (DRIP) following approval by the Board of Directors. The amendments, effective 30 days after shareholder notification, aim to align the Fund's DRIP with more recently adopted plans in the industry [1].

Key modifications include allowing the Fund to issue new shares to DRIP participants regardless of whether the common stock trades at a premium or discount to the Fund's Net Asset Value (NAV). Previously, the Fund had to purchase shares on the open market when the stock was trading below NAV. The amended Plan will price reinvested distributions at 95% of the market price at close of trading on the NASDAQ Capital Market, or if no sales occur, using the average of closing bid and ask quotations [1].

The changes are part of an effort to simplify the DRIP process and make it more flexible for shareholders. The Fund encourages its shareholders to carefully review the updated Plan to determine whether they would like to remain or become a Plan participant.

Amy Arnott, a portfolio strategist at Morningstar Inc., advises investors to reconsider their dividend reinvestment strategies. While dividend reinvestment can be beneficial for long-term growth, it may not be the best choice for generating income or simplifying taxes. The tax treatment of dividends varies between taxable and tax-deferred accounts, with qualified and nonqualified dividends also playing a role. Recordkeeping is essential, and considerations differ for stock dividends versus fund dividends. Ultimately, the decision to reinvest dividends should be based on an investor's financial goals [2].

Investors should carefully consider the Fund's investment objective, risks, charges, and expenses before making any decisions. Herzfeld Credit Income Fund is subject to various risks, including market risk, portfolio fair value risk, and liquidity risk. Annual and semi-annual reports, as well as other regulatory filings, are accessible on the SEC's website at www.sec.gov and on the Advisor's website at www.herzfeld.com/herz [1].

References:

[1] https://www.stocktitan.net/news/HERZ/herzfeld-credit-income-fund-inc-announces-board-approval-of-change-atktuwhxuteg.html
[2] https://www.morningstar.com/