Fiscal Cliff With Dividend Stocks

The election is over. The voters have spoken. We now turn our eyes to what might unfold over the next year or so. The most immediate issue facing the sitting Congress and President Obama is the “Fiscal Cliff,” a catch-phrase that calls attention to a year-end deadline featuring three key policy items: (1) The expiration of the tax cuts implemented in 2001-2003; key here being lower dividend and long-term capital gains tax rates; (2) the expiration of the temporary payroll tax cut and other miscellaneous tax breaks dating to 2009-2010; and (3) automatic spending cuts related to the temporary debt-ceiling compromise from 2011.

The bottom line is that under any given tax regime, high dividend stocks offer a higher long-term expected rate of return than do “growth” and low-dividend stocks. Dividends have, historically, grown faster than the rate of inflation. Investors worried about the eventual return of higher inflation (like us) are well-served to stock up on high dividend stocks.

Source: Forbes

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