Income Tax Cocktail (Photo credit: Kenn Wilson) |
Dividend payers have been the darlings of the market in the past year. Historically-low interest rates and market uncertainty had even the most aggressive investors turning to solid dividend
payers.
You can see that in the returns of many of the market’s best-known dividend payers. AT&T ( T ) is up 22% in the past year. Philip Morris ( PM ) is also up 22%. And the SPDR S&P Dividend ETF ( SDY ) — which holds a basket of the market’s steadiest dividend payers — is up 13%.
This is a mixed blessing for us. On one hand, we’ve seen dividend payers gain as the demand for them grows. On the other hand, the yields on these securities have dropped as the prices
increased. A year ago, AT&T yielded 6%. Until just a few weeks ago, that yield fell to just 4.5% because of its soaring share price. That’s why I’m starting to get excited.
increased. A year ago, AT&T yielded 6%. Until just a few weeks ago, that yield fell to just 4.5% because of its soaring share price. That’s why I’m starting to get excited.
Although the market will celebrate if we avoid the fiscal cliff, dividend stocks may not join the party. Even if a budget deal is struck, the qualified dividend tax rate of 15% could very well rise.
If that happens, then dividend stocks may lose their fair-weather investors — and we could see share prices soften — and yields increase. We’ve already seen that happen once in the past month…
Main Street Capital ( MAIN ) is a business development company ( BDC ) . It lends money
to mid-sized companies that can’t easily access the public markets. As a business development company, Main Street is required to pass on the bulk of its profits to investors.
to mid-sized companies that can’t easily access the public markets. As a business development company, Main Street is required to pass on the bulk of its profits to investors.
However, when the market sold off a few weeks ago, Main Street saw its price drop sharply in just a few days as fair-weather income investors dumped the stock. That caused the dividend yield to spike from 5.9% to 6.6% in just days. (What’s most interesting is that income from BDCs like Main Street Capital are taxed at ordinary rates. These investors wouldn’t even be affected by increased dividend taxes .) Since then,shares have rebounded, providing 10% in capital gains, along with locking in the higher yield. But Main Street is just one example of what happened among many dividend payers.
Action to Take –> There’s no guarantee , but I believe the market will continue its knee-jerk fiscal cliff
reaction, putting more pressure on dividend-paying securities in the short run. If and when that happens, I want to be a buyer and
put cash to work in higher yields than I could have earned just a
few months ago. ... Continue to read.
oh its really great news for investor .your enlisting options are really very well going .we can take an advantage of it ,thanks for sharing
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