Reasons Not To Flee Dividend Stocks

Many investors are particularly worried that dividend stocks are vulnerable given the potential for a near tripling of the tax on dividends. I believe volatility will remain elevated and stocks will stay under pressure until the president and Congress produce a credible road map to a compromise. That said, I don’t believe dividend stocks — with one exception — are any more vulnerable than the broader market. Here’s why:

1. Many dividend stocks are held in non-taxable accounts, 2. Historically, when dividend tax rates have risen, companies have made investors whole on an after-tax basis by raising their dividends to offset the higher tax rate and 3. Many high dividend payers are concentrated in defensive industries, like healthcare and consumer staples. While I’m comfortable with dividend paying stocks in general, there is one major exception: U.S. utilities.

Source: Seeking Alpha

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