What is the point of Non-dividend distributions and how do they benefit investors?

You're asking a great question! Non-dividend distributions might seem disadvantageous at first glance, but there are several benefits worth understanding. The main advantage is tax deferral. When you receive a non-dividend distribution, you don't pay any taxes on that money right away (unlike regular dividends which are taxed immediately). You only pay taxes when you eventually sell the stock. This tax deferral allows your money to grow without immediate tax consequences. Another benefit is cash flow without triggering a taxable event. You're getting money back while still maintaining your ownership position in the company. Additionally, non-dividend distributions often occur when a company has excess cash but has already distributed all of its earnings and profits. Rather than reinvesting this capital, the company returns it to shareholders, which can be a sign of shareholder-friendly management.

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Another thing to consider with non-dividend distributions is they often happen with certain investment structures like Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs). These entities are required to distribute most of their income but often have large depreciation deductions that create a mismatch between accounting income and taxable income. This lets them return capital to investors without it being considered a taxable dividend.

Does anyone know if I need to keep track of these non-dividend distributions myself or if my brokerage will do that for me? I got some from my MLP investments last year and I'm not sure if my cost basis is being adjusted automatically in my account.

You're absolutely right to be thinking about this carefully! While it's true that non-dividend distributions lower your cost basis and potentially increase your taxable gain when you sell, there are some important timing benefits to consider. The key advantage is that you're getting cash now without any immediate tax consequences, while only paying taxes later when you sell. This tax deferral can be valuable because: 1. You have use of that money immediately (time value of money) 2. Your future tax rate might be lower than today's rate 3. You can control the timing of when you realize the gain by choosing when to sell Also, some non-dividend distributions might represent genuine returns of excess capital that the company doesn't need for operations, rather than just accounting maneuvers. In those cases, you're getting back money that might otherwise just sit on the company's balance sheet earning minimal returns. That said, you're right to be cautious - make sure you're tracking these basis adjustments properly since they'll affect your taxes when you eventually sell!