Long time reader Larry M brings up the question of whether CEF dividends are qualified or not.
Currently we have 1/2 of them marked as YES–QUALIFIED. We have done a bunch of research tonight and since they are organized as RICs (registered investment companies) and thus pay no income taxes we believe we are WRONG and will be changing all of the pages of those individual issues to NOT QUALIFIED.
As near as we can tell–and we are now 90% convinced – that they pay ordinary income and ROC (return of capital). Of course the ROC is not an issue for most investors but the ordinary/qualified distribution question affects those holding these securities in taxable accounts.
Unfortunately the topic is maybe not as cut and dried as it may seem as we have found a few CEFs that claim some portion of there distributions as “qualified”–but yet they pay not income taxes which would seem to preclude any qualified distributions.
It is our recommendation that investors consider CEF dividends as ordinary income unless confirmed otherwise directly with the particular CEF.
We have corrected security pages to non-qualified.