The impact of the "Fiscal Cliff" or $600 billion in spending
cuts and increase in tax rate on dividend income and capital
gains will take its effect from the beginning of 2013 if concrete
measures are not taken to avert it. However, Republicans and
Democrats still continue to wrangle about ways to find a
solution.
Consequently, several companies are contemplating dividend
hikes, special dividend and early payouts in light of a probable
rise in dividend tax rate from the beginning of next year. These
measures are taken to relieve shareholders from the burden of
higher taxes. After all, an ounce of prevention is worth a pound
of cure.
The tax rate could go up to 43.4% (39.6% top ordinary tax rate
+ 3.8% Obama's Medicare surcharge tax on investment income) from
the current 15%.
The "Jobs and Growth Tax Relief Reconciliation Act of 2003" is
set to expire and renewal of the Bush-regime lower tax rate seems
a remote possibility as of now. Thus, companies need to decide if
they are ready to dole out dividends now or be prepared to face
the brunt of a likely hike in dividend tax rate.
However, the companies have already taken certain
shareholder-friendly moves sensing the uncertainty revolving
around the economy.
Costco Wholesale Corporation
(
COST
) declared a special dividend of $7.00 per share, amounting to
approximately $3 billion to be financed from the proceeds of the
$3.5 billion debt-offering.
Dillard
's
Inc.
(
DDS
) declared a special dividend payout of $5 per share, and
Walt Disney Co.
(
DIS
) hiked its annual dividend by 25%.
Wal-Mart Stores Inc.
(
WMT
) will pay its regular dividend on Dec 27, ahead of its scheduled
date of Jan 2, 2013.
Las Vegas Sands Corp.
(
LVS
) announced a special dividend of $2.75 per share.
Wynn Resorts Ltd.
(
WYNN
) rewarded its shareholders with a special dividend of $7.50 per
share in its recently concluded third quarter.
Coach Inc.
(
COH
), famous for women's handbags, would also pay its quarterly
dividend of 30 cents a share on Dec 27, ahead of the scheduled
date of January 2, 2013.
Oracle Corporation
(
ORCL
), the software maker, will pay dividends for the last three
quarters of fiscal 2013 together in advance, aggregating 18 cents
a share, on Dec 21.
The McGraw-Hill Companies Inc.
(
MHP
) will pay a special dividend of $2.50 per share on Dec 27. The
electronic products retailer,
Best Buy Co. Inc.
(
BBY
) will now pay its quarterly dividend of 17 cents on Dec 31, two
days ahead of its scheduled date.
Conclusion
We believe that if higher dividend tax rates take shape, it
will compel investors, who have lately gone overweight on
dividend-paying stocks, to reshuffle their portfolios and sell
those stocks to avoid paying inflated tax in 2013. Moreover, it
is very likely that consumer confidence would also be dented,
which the retailers definitely don't want at the present
juncture.
The decision makers should reach a consensus that should not
only benefit the economy but investors too. Keeping our fingers
crossed...
BEST BUY (BBY): Free Stock Analysis Report
COACH INC (COH): Free Stock Analysis Report
COSTCO WHOLE CP (COST): Free Stock Analysis
Report
DILLARDS INC-A (DDS): Free Stock Analysis
Report
DISNEY WALT (DIS): Free Stock Analysis Report
LAS VEGAS SANDS (LVS): Free Stock Analysis
Report
MCGRAW-HILL COS (MHP): Free Stock Analysis
Report
ORACLE CORP (ORCL): Free Stock Analysis
Report
WAL-MART STORES (WMT): Free Stock Analysis
Report
WYNN RESRTS LTD (WYNN): Free Stock Analysis
Report
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