Dividend Investors Beware

During Tuesday’s Mad Money, Cramer described the negative affects that the feds here could have on dividend-paying stocks, one of his all-time favorite investments. Next year President George W. Bush’s tax cuts will expire, sending the tax rate on dividends and capital gains soaring from its low 15% level. While Cramer wasn’t predicting an out and out sell-off, he said it’s very likely that money managers will unload their dividend holdings before the expiration. And why not? They’ll need the money, and the tax-friendly gains they once enjoyed will be gone.

Even despite the potential tax increase, though, Cramer still likes dividend stocks. Especially the accidental high-yielders he’s been recommending. Because at the end of the day many of them will still yield more than US Treasurys, while both will be taxed at the same rate. And don’t forget about the power of compounding reinvested dividends, which have generated 40% of the total return from the S&P 500 going back to 1926.

Source: CNBC


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