Rock bottom interest rates forced the yield-starved investors
to look for alternate sources of income. Many of them poured
money in the dividend paying stocks and
But the dividend stocks have taken a hit of late, due to the
concerns relating to potential tax hike next year. Currently the
qualified dividends are taxed at 15% top rate, same as long-term
capital gains rate.
If the tax cuts are not extended, long-term capital gains tax
will revert to 20% but the dividends will be taxed as income, at
rates up to 39.6%. Additionally, there may be a 3.8%
surcharge on investment income for investors with higher
While investors can look for alternate sources of income like
emerging markets bonds or municipal bonds if the taxes do go up,
I do not think that the high-quality dividend stocks should be
sold in anticipation of the tax increase, as they still represent
Many dividend stocks are held in tax-deferred accounts or held
by institutional investors and are not affected by the tax
issues. Some are held by the foreign investors.
Further most dividend paying companies are large, mature
companies with solid cash-flows and are likely to perform better
than the broader market if the cliff materializes. So, the
sell-off in the dividend stocks is not entirely justified.
Please share your thoughts.
ISHARS-HIDIV EQ (HDV): ETF Research Reports
GLBL-X SUPERDIV (SDIV): ETF Research Reports
VANGD-DIV APPRC (VIG): ETF Research Reports
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