ANYONE KNOW OF THIS CALCULATION ANYWHERE......

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What i’m trying to figure out is, lets say an investor owns a stock with a large capital gain, for instance a bank stock that is worth $75 and pays $2.50 in dividends annually. He has a cost basis of $1 therefore he is reluctant to sell the position and realize capital gains.
Lets say he holds around 40,000 shares valued at $3 million. I would like to know, if he invests the $100,000 annual dividend and buys more shares at $75, this would increase his adjusted cost base. so the year after, he would own 41,333 shares, and then the dividend would be more and would keep buying shares. This assume an even stock price and same dividend but you get my point. How long until to increase the average cost base to a point there would be somewhat reasonable capital gains and then he would consider selling to therefore diversify his portfolio ?
 
IRS does not care about average cost basis. As far as they are concerned, each individual share has its own cost basis and that determines the capital gain for that share. If you can’t identify the cost basis of a specific share when you eventually sell it, IRS requires you to use FIFO in determining your gain.
 
You can use those dividends to purchase other diversifying assets (over time) or use derivatives to hedge (quicker).
 
Don’t spin your wheels on do this kind of calculation. Present an exchange fund to your client, and use the dividend to diversify into other assets.
 
Hey maybe I should have clarified that this is a Canadian situation where FIFO/LIFO isnt used and average cost base is used. So to provide more info, pretend someone 40 years old has these significant holdings at low tax cost basis. in canada there is avergae cost base so yes, it would be ideal if he had double the amount of $ in an unrealized loss position that he can use to offset these gains but there are no other assets in this example and only dividend payments that can be used to re-purchase the shares at the higher cost base to move the average cost up.
 
Still better to use divs to diversifty and use a PPVF, collar, or exchange fund. Also, if using SMAs, mutual funds, or ETF for the rest of the port make sure the manager isn’t buying more of said bank stock. Not sure if Canada has something similar to a CRUT if he is charitably-minded?
 
Hit the nail on the head…many times, we “listen” to our client, but we don’t really listen. Don’t focus on ths “problem”, steer your client’s attention away from that, get a way to get him to diversify and find a solution that can get you paid.
 
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