Are Problems Ahead For Blue Chip Dividend Stocks?

OK, I admit it, I am an interloper when it comes to investing in blue chip dividend stocks. It is only over the past year or so that I've added some targeted exposure to this sub-sector to overweight it in my portfolio. However, I am already starting to have some second thoughts as I see storm clouds reappearing on the horizon in the form of the likely changes in tax policy towards dividends.

Prior to EGTRRA (the so-called "Bush Tax Cuts"), dividends were taxed as ordinary income while capital gains enjoyed a comparatively lower rate, however EGTRRA coupled the tax rates for these items and reduced the top rate to 15%. EGTRRA was to expire on 12/31/10 but it was extended to 12/31/12 during the contentious negotiations between Congress and the President at the end of last year. Now with Washington seemingly ever more dysfunctional, there is an increasing chance EGTRRA could fully expire at the end of 2012. If it does, dividends will again be treated as ordinary income.

Source: Seeking Alpha

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