How to Handle the Coming Dividend Tax Hike

Jack Hough
Smart Money

…Unless Congress takes action, the top tax rate for the highest earners on most dividends, currently 15%, is set to jump to a whopping 43.4% next year. That is a maximum income-tax rate of 39.6% — since dividends will once again be taxed as regular income — plus a 3.8% tax on investment income as part of the health-care overhaul passed in 2009.

Higher dividend taxes could take some luster off dividend-paying stocks — and because the market is forward-looking, the fear is that their prices will fall sooner rather than later.

Dividend investors could protect themselves in the short term by placing options bets on a broad decline in dividend-paying shares, but that strategy is expensive. A better course for most is to seek a balance of income and growth stocks. In the income-stock portion, investors should favor those that promise to boost their dividend payments over those that merely have the largest “dividend yields,” or payments as a percentage of their stock prices…

…For purposes of planning and prudence, investors should assume higher dividend taxes are coming and focus on the likely fallout. History offers some useful clues…

Read the complete article at

Comments are closed.