5.28.2008

Taking away our dividends

Don't Kill Our Dividends

Excerpt:

In May 2003, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA), which reduced the tax rate on qualified corporate dividends and long-term capital gains to 15% (in most cases). Without an act of Congress, however, JGTRRA will not last beyond 2010.

The effects of the act have been the topic of much debate, but here are three facts to help you decide for yourself. Between January 2003 and December 2007:

  • Dividends paid by S&P 500 companies increased by 70%.
  • The average yield of the S&P increased to 1.89% from 1.61%.
  • Tech stocks such as Applied Materials (Nasdaq: AMAT), Xilinx (Nasdaq: XLNX), and Jabil Circuit (NYSE: JBL) began paying regular dividends.

Because JGTRRA reduced the dividend tax from the individual's ordinary income tax rate to a maximum of 15%, it lessened the adverse effects of "double taxation," where a corporation pays taxes on its earnings and then investors pay yet another tax on the distributed earnings. Now that the dividend tax has been reduced, corporations have been more willing to distribute dividends -- and investors have been more inclined to receive them.


Comment: You may think this will have little impact on the small investor, but if you have a 401K plan, it will impact you if this is not extended

1 comment:

  1. Not only this, but I'd argue that paying dividends reminds the executives that their duty is not simply to grow the company, but rather to generate profits. There have been a lot of needless mergers and acquisitions led by execs who think that their only job is to grow the stock price, not ensure profitability.

    Lots of people (say people fired after mergers) suffering for that one.

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