When Will The High Dividend Yield Bubble Burst?

You may recall a time when dividends were taxed at ordinary income tax rates versus being taxed at the much lower long-term capital gains tax rate that they have been taxed for the last several years. When there is a large spread between dividend tax rates and capital gains rates, dividends just waste money. We’ve seen this before and it is just common sense.

The problem with high dividend yield stocks, though, is that they are hyped for their dividends. So, companies that reduce their dividend to avoid needless taxation of their shareholders are taken out to the woodshed for their actions. They are in a quandary. After tax, their stocks are less attractive than companies that use their profits more tax efficiently for shareholders, but if they reduce their coveted dividend, they break their long dividend history and all of the financial products that hyped high dividends have to sell their stock.

Source: Forbes

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