Market Wrap-Up for Sept.20 (NSC, FDX, UNP, C, BAC, CAG, GS, more)

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We had a negative start to the trading day following a profit warning from another transport sector bellwether Norfolk Southern ( NSC ). This came on the heels of FedEx's ( FDX ) negative outlook as well. The markets did absorb the selling well and in fact, the indices were able to close mixed on the day.

The selling certainly hit other key rail plays such as Union Pacific ( UNP ) and CSX Corp ( CSX ). The financial sector was also in the red following news Bank of America ( BAC ) is going to lay off another 16,000 employees. Throw in valuation concerns from a Wall Street analyst and we had red on the screen for the likes of Citigroup ( C ), Goldman Sachs ( GS ), and Morgan Stanley ( MS ). Bucking the early selling were companies like ConAgra Foods ( CAG ) following the company's earnings report, and Limited Brands ( LTD ), which was boosted from positive comments by a Wall Street analyst.

The Power of the Rolodex (Washington Style)

Big news out of Washington today as news came across the wires that former Republican presidential hopeful and VP candidate Tim Pawlenty will become the head of the Financial Services Roundtable, the group representing the behemoths in the banking industry. The hope is Mr. Pawlenty will keep voter interest in mind as Wall Street and the big banks try and win back the confidence of depositors/savers/investors.

Only in Washington can losing (the chance to win office) potentially pay off as much as winning! Let's hope Mr. Pawlenty does indeed keep our best interest in mind and possibly convince banks to be a bit more generous to those looking to park some cash in higher-yielding liquid accounts.

Politics aside (and please don't e-mail us about hidden agenda right-wing/left-wing takes as we just care about the ramifications for investors and savers), inflation is continuing to eat away at those who are sitting in cash, money market accounts, savings accounts, or whatever liquid accounts. We all know there is a big emphasis on pushing financial institutions back to the old levels of lending, so the real estate market can regain its feet. However, the biggest impact Washington must continue to focus on is jobs (cuts still happening as Bank of America announced this morning), regardless of which party is victorious come November. There isn't going to be much of a sustained real estate rebound if many still remain without work.

Dividends/Capital Gains Tax Increase Update

Staying with the Washington theme, we continue to monitor any new developments when it comes to the possible expiration of the Bush tax cuts, affecting capital gains rates for dividend investors and others. The aim could be to raise the dividend tax rate for married couples earning more than $250,000 a year and individuals earning more than $200,000. There may also be an additional 3.8 percent tax on the unearned income of couples earning $250,000 and individuals making at least $200,000.

At its worst-case, the tax rate for the wealthy would hit 43.4 percent in federal taxes on their dividends next year, compared to 15% currently for qualified dividends.

Continued speculation indicates some sort of compromise will be reached, as is normally the case in politics. In the end, we could wind up with a number closer to a 20% tax rate on qualified dividends for the wealthiest Americans. Most dividend investors will thus be unaffected by the new measures.

Fidelity Investments came out with a report yesterday in which they went back and looked at the impact of previous tax policy changes, noting little impact overall on dividend share prices. They also noted 56% of dividend income goes to those in the top tax bracket, with dividend payouts making up only 3% of their overall tax bill. The wealthy tend to not let tax issues affect where they put their money and neither should everyday investors. The road to building wealth still boils down to accumulating assets that produce income, regardless of what tax bracket you fall in.

25 Years of Dividend-Increasing Stocks

We recently updated our list of dividend stocks that have been paying out dividends for 25 years or more. Be sure to check out the latest list of names here .

Dividends Really Matter

Financial blog DailyReckoning.com recently took a look at the difference dividend payouts made in the overall return investors saw throughout the prior decades. Here are some of the highlights:

- The Nasdaq is down 28% since the end of 1999. Even the "blue chip" S&P 500 stocks are down 15% during that time frame…until you add back those "boring" dividends. With dividends included, the S&P 500′s 15% loss flips to a 6% gain.

- Without dividends, the S&P 500 index would have produced a loss for the 25 long years from August 1929 to August 1954. Then again, without dividends, the S&P 500 produced a 5% loss during the 13 years from September 1961 to September 1974. But with dividends included, the S&P's loss became a 46% gain.

- Over the course of the last half-century, dividends have contributed more than half of the stock market's total return - 56%, to be exact.

Of course, you can't discuss the potency of dividend investing without making mention of how awesome compound returns are. I can't stress enough the power of compound interest: you take a small amount of money and turn it into a large amount over time. Finding the right companies at the right price points which not only grow earnings, but also grow their dividend payouts as well!

New Watchlist Article Out Today

Be sure to check out our weekly Top 50 High-Yield Watchlist Names post that is out today, exclusively for Dividend.com Premium members. This list gives readers a good idea of what stocks we're watching behind the scenes here for potential upgrades.

Go Beyond This Newsletter

We know many of you enjoy reading the daily newsletter, but remember that with our Dividend.com Premium service, the newsletter is just one small component of what we offer. Here are the "Big Three" benefits of our Premium service:

- The Best Dividend Stocks List is used by tens of thousands of investors to help build their own portfolios.

- Creating your own Watchlist allows you to track the performance, news, and upcoming dividend payouts of the particular stocks you care about.

- Finally, we offer the most complete and easy-to-use dividend data on the web. Many subscribers use this data as part of a "Dividend Capture" trading strategy, but long-term investors can use it to keep track of impending payouts. Just visit our Ex-Dividend Calendar for a complete outlook on which companies will be paying out soon.

We don't ask for a credit card to use our free trial, and we don't bill you when your trial ends. No obligation whatsoever! So keep enjoying the newsletter, but please give Dividend.com Premium a shot if you haven't already subscribed!

Thanks for reading, and I'll see you tomorrow!

Be sure to visit our complete recommended list of the Best Dividend Stocks , as well as a detailed explanation of our ratings system here .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Stocks

Referenced Stocks: BAC , C , CAG , CSX , FDX

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