Dividend Stocks Could Tumble If Tax Cuts Disappear

As Congress and the White House head toward another battle over extending the Bush-era tax cuts, a trade association representing utility companies is warning that investors could be in for a major hit if the rates for qualified dividends revert to their pre-2003 levels, even if the only rates that move are those for the wealthiest Americans. The Edison Electric Institute (EEI) on Thursday released a study analyzing the age, income level and investment goals of investors in dividend stocks, concluding that any rate increase could cause a major sell-off and drain value from the normally stable companies known for high yields rather than volatility.

President Obama is calling for an extension of the cuts for all but the wealthiest Americans, or those earning $250,000 or more annually. Republicans in Congress have been united in their calls for extending all of the cuts, inviting a replay of the showdown that occurred the last time the tax rates came up for renewal in 2010. If a standoff looms, threatening to send dividend and capital gains rates higher, Jeff Sica, president and CEO of Sica Wealth Management, anticipates a sell-off before the end of the year.

Source: On Wall Street

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