Higher taxes may not slash dividend-paying stocks
NEW YORK — If Washington allows tax cuts to expire at the end of the year, taxes on dividends will nearly triple for the highest-paid Americans.
That's led some experts to warn of a looming collapse for popular dividend-paying stocks. When Uncle Sam charges a higher tax on something, they reason, it drives people away.
But judging by the country's previous experience taxing dividends, that may not be how things play out.
“Historically, big changes in taxes just have no effect on dividend stocks,” said James Morrow, a fund manager at Fidelity Investments. “And our view is that you should lean on history.”
Recent studies have examined how companies in the Standard & Poor's 500 index have fared over the past half-century when taxes on dividends change. They found dividend-paying stocks performing in seemingly unpredictable ways.
Between 1990 and 1993, for example, when dividend taxes climbed to a maximum of 39.6 percent from a maximum of 28 percent, dividend-paying stocks outperformed the broader market.
“The ‘fiscal cliff' will be a big deal for the stock market if it's not avoided,” said Russ Koesterich, global chief investment strategist for BlackRock's iShares group. “But it's probably not such a big deal for many dividend-yielding stocks.”
Tax increases and government spending cuts known collectively as the “fiscal cliff” are set to take effect on Jan. 1 unless Congress and President Obama reach a deal first.
Obama wants to keep the tax cuts in place, including the 15 percent dividend rate, for people making less than $200,000.
Republicans want to keep the tax cuts for everyone, including the 15 percent dividend rate, but have not taken a hard line on the dividend rate publicly.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Natural gas groups says increase in Pennsylvania taxes would bring dire results for economy
- Harmar developer sells 15 hotels in Western Pa., West Virginia
- Insurers give customers extra time to pay first month’s premium for 2015 under Obamacare
- FedEx misses Street 2Q forecasts, but profit jumps 23 pct
- FedEx to buy product-return firm Genco in e-commerce push
- 84 Lumber vice president McCrobie says company, housing market rebounding
- EDMC accused in GI Bill scheme
- Ocwen review flawed by unreliable data, mortgage settlement monitor says
- Repsol to buy Canada’s 5th largest oil producer, Talisman Energy
- Consol Energy moves ahead with plan to spin off coal operations
- Early oil-fueled rally fizzles on Wall Street