Are there any tax implications for investors receiving the cash dividend and the preferred dividend that could affect net returns? | BANC (Aug 08, 2025) | Candlesense
BANC

Are there any tax implications for investors receiving the cash dividend and the preferred dividend that could affect net returns?

Tax considerations for the two dividends announced by Banc of California (BANC)

Dividend Amount per unit How it is taxed in the United States* Practical impact on net return
Common‑stock cash dividend $0.10 per common share • Qualified‑dividend treatment if the stock has been held for the required “holding period” (generally > 60 days during the 30‑day period that precedes the dividend date for non‑preferred shares).
• Qualified dividends are taxed at the long‑term capital‑gains rates: 0 %, 15 % or 20 % (plus the 3.8 % Net Investment Income Tax (NIIT) for high‑income taxpayers).
• If the holding‑period requirement is not met, the dividend is non‑qualified (ordinary) dividend and is taxed at the ordinary income rates (10 %–37 %).		 • For most retail investors who already own the shares, the $0.10 per share is modest, so the tax drag is small.
• The net after‑tax yield can be reduced by 0–20 % (or up to ~24 % for high‑income taxpayers subject to NIIT).
Series F preferred‑stock cash dividend $0.4845 per depositary share (7.75 % fixed‑rate, non‑cumulative perpetual) • Preferred‑stock dividends are generally treated as ordinary (non‑qualified) dividend income because the “qualified‑dividend” rules apply only to common‑stock dividends.
• Consequently, the entire $0.4845 per preferred share is taxed at the investor’s marginal ordinary‑income tax rate (10 %–37 %).
• For high‑income individuals, the 3.8 % NIIT also applies to the dividend amount.		 • The effective tax rate on the preferred dividend is typically higher than the rate on the common‑stock dividend, which can cut the after‑tax yield by roughly the investor’s marginal rate (e.g., 24 % for a 24 % bracket, 27 % for a 27 % bracket).
• Because the preferred dividend is larger per unit ($0.4845 vs $0.10), the tax drag on net return is proportionally more significant.

1. What determines “qualified” vs “non‑qualified” status?

  • Qualified dividend – Must be paid by a U.S. corporation (or a qualified foreign corporation) and the investor must satisfy the holding‑period test: the shares must be held for more than 60 days during the 121‑day period that begins 60 days before the dividend’s ex‑date (for common stock). If this test is met, the dividend qualifies for the lower long‑term capital‑gains rates.

  • Non‑qualified (ordinary) dividend – Any dividend that fails the qualified‑dividend test, or any dividend from a preferred security, is taxed as ordinary income at the investor’s marginal tax bracket.

2. Federal tax rates that may apply

Taxpayer bracket (2024/2025) Qualified‑dividend rate Ordinary‑dividend (marginal) rate
10 % 0 % (if in 0 % capital‑gains bracket) 10 %
12 % 0 % (if in 0 % capital‑gains bracket) 12 %
22 % 15 % 22 %
24 % 15 % 24 %
32 % 20 % 32 %
35 % 20 % 35 %
37 % 20 % 37 %
  • Net Investment Income Tax (NIIT) – An additional 3.8 % on net investment income (including dividends) for individuals whose modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly). This applies to both qualified and non‑qualified dividends.

3. State and local tax considerations

  • Most states tax dividend income as ordinary income at the same rate as other wages/interest.
  • A few states (e.g., North Dakota, Tennessee, New Hampshire) have partial or full exemptions for qualified dividends, but the effect is modest compared with the federal rate.
  • Investors in high‑tax states (e.g., California, New York, Illinois) will see an additional state‑tax drag on both dividends, especially the preferred dividend that is already taxed at ordinary rates.

4. Impact on net returns – a quick illustration

Assume an investor holds:

  • 1,000 common shares → $0.10 × 1,000 = $100 cash dividend.
  • 500 Series F preferred shares → $0.4845 × 500 = $242.25 cash dividend.
Scenario Federal tax rate Federal tax paid After‑tax cash
Qualified common dividend (15 % bracket) 15 % $15.00 $85.00
Ordinary preferred dividend (24 % bracket) 24 % $58.14 $184.11
Total after‑tax — $73.14 $269.11

If the same investor is in a high‑income (37 % bracket) + NIIT situation:

Dividend Federal tax (37 % + 3.8 % NIIT) After‑tax cash
Common (qualified) – taxed at 20 % + 3.8 % = 23.8 % $23.80 $76.20
Preferred (ordinary) – 37 % + 3.8 % = 40.8 % $98.57 $143.68
Combined after‑tax — $219.88

The preferred dividend’s higher ordinary‑income tax rate reduces the net yield more sharply than the common dividend.

5. Practical steps investors can take

  1. Verify the holding period for the common shares. If you bought the shares within the 60‑day window before the ex‑date, the dividend will be non‑qualified and taxed at ordinary rates.
  2. Consider account type – Holding the shares in a tax‑advantaged account (e.g., Roth IRA, traditional IRA, 401(k)) shelters the dividend from current federal tax (and state tax for most accounts).
  3. Plan for the NIIT – If your MAGI is near the $200k/$250k thresholds, the additional 3.8 % could be material.
  4. State‑tax planning – If you reside in a high‑state‑tax jurisdiction, the after‑tax impact will be larger; you may want to factor state tax into your total return calculations.
  5. Foreign investors – Non‑U.S. persons are generally subject to a 30 % withholding tax on U.S. dividends unless a tax treaty provides a reduced rate. The preferred dividend, being ordinary income, is also subject to the same withholding.
  6. Reinvest vs. cash‑out – If you automatically reinvest the dividends (DRIP), the tax liability still applies; the reinvested amount simply becomes part of your cost basis for future capital‑gain calculations.

6. Bottom line

  • Common‑stock dividend – likely qualified (if you meet the 60‑day holding rule) and therefore taxed at the more favorable long‑term capital‑gains rates (0 %, 15 % or 20 %).
  • Series F preferred dividend – always taxed as ordinary (non‑qualified) dividend at your marginal income tax rate (plus any NIIT). Because the preferred payout is roughly five times the common payout per share, the tax drag on net return is proportionally larger.

Consequently, the preferred dividend will have a greater negative impact on after‑tax returns for most investors, especially those in higher federal or state brackets. Proper tax planning—checking the holding period, using tax‑advantaged accounts, and accounting for state and NIIT liabilities—can help mitigate the effect and give you a clearer picture of the true net yield from Banc of California’s dividend announcements.

Other Questions About This News

How will the $0.10 quarterly dividend affect BANC's short‑term stock price and trading volume? What is the market’s perception of the dividend policy—does it signal confidence in earnings stability or a shift toward returning capital to shareholders? Could the dividend payouts affect BANC’s ability to fund future growth initiatives or potential M&A activity? How might the dividend announcements influence the pricing and volatility of BANC’s options and futures contracts? How does the $0.4845 dividend on the 7.75% Fixed Rate Non‑Cumulative Perpetual Preferred Stock, Series F, compare to the yields on similar preferred securities in the market? What is the implied dividend yield based on the current share price, and how does it compare to the broader banking sector? What is the payout ratio for the common dividend and does it indicate any potential strain on the balance sheet? Will the dividend declarations impact the company’s credit metrics or any upcoming regulatory capital requirements? Is the cash dividend sustainable given BANC’s recent earnings, cash flow, and capital allocation priorities?