Will Higher Taxes Bring Dividend Stocks Down?

Back in 2003 the Bush administration cut the top rates on dividends and capital gains to 15%. After seven years the preferential treatment of investment income is set to expire. If congress doesn’t extend the tax cuts, the top rates on dividend income could increase to as much as 39%. This leaves many investors wondering whether dividend stocks will be negatively affected by the tax hike.Since 2003 there has been great interest in dividend paying stocks. Many companies such as Yum Brands (YUM) initiated dividends for the first time ever, while companies like Microsoft (MSFT) paid onetime special dividend payments to shareholders. In addition to that several dividend focused exchange traded funds such as iShares Dow Jones Select Dividend index (DVY) and SPDR S&P Dividend (SDY) were formed, attracting millions in assets under management. In addition to that many long time dividend payers such as PepsiCo (PEP) started increasing distributions at a higher pace than before, which further benefited their shareholders.... Read more