The Impact Of Higher Taxes On Dividend Stocks

What will be the impact of a higher tax rate on dividends for dividend-paying stocks? The investment advisory firm of Miller/Howard Investments, Inc. has published a white paper analyzing the answer to the above question. The paper states that it will not matter for investors in dividend stocks if the tax regime changes. The research paper referenced a Federal Reserve study where the authors analyzed the effect of tax changes using U.S. stock market vs. European markets, U.S. stock market vs. REITs (as the tax cut did not benefit income from REITs), and high-yield dividend stocks (3% yield and greater) vs. low-yield stocks and non-dividend payers.

Their conclusions were: 1. There was little if any imprint of the dividend tax cut on the value of the aggregate stock market. 2. High-yield stocks did receive a boost but the effects were short-lived. 3. REITs dropped on the day before bill was signed but recovered within days. A substantial portion of U.S. stocks were held in accounts or entities for which the lower dividend tax rate did not apply. Similar to the top dividend tax rate at 15%, the top long-term capital gains tax rate is also 15% for investors in the 25% or higher tax-brackets. Long-term capital gains apply to gains from assets held for over one year.

Source: Seeking Alpha

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