Obama Wins, Hello Fiscal Cliff

Even though the "fiscal cliff" may put a damper on dividend income, many bank stocks are paying dividend yields that are especially attractive in the prolonged low-rate environment. With the presidential election has been settled, FBR financial policy analyst Edward Mills wrote on Wednesday morning that although "it will take several days for the full narrative of the election to develop, we view the result as significantly increasing the volatility related to the negotiations on the 'fiscal cliff.' With a slim margin for the President and Republican control of the House, both sides could argue that they have the upper hand in negotiations and will view the election as a validation of their positions."

Mills said that with President Obama being reelected, while the Rebublicans maintained control over the House of Representatives, "We do believe that the chances of going off the cliff (at least temporarily and before a deal is reached to punt) has increased." For income-seeking investors, the biggest immediate headache if we fall off the fiscal cliff will be the elimination of the 15% maximum federal income tax rate on qualified dividend income. Investors will need to carefully analyze investment options according to their federal and state tax scenarios.

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