The Future of Dividend Stocks

I don’t have a crystal ball or a bunch of models or mathematical proofs to make my point, but I have a sense, based mostly on the tenor of the times, that we’re likely to see fewer dividend stalwarts in the future. Let’s consider the qualities that characterize solid dividend payers currently. As a rule, they are large, well-established and profitable companies that continue to grow, but rarely at the pace of newer, “hot” companies. Their corporate cultures are strong and well established, and their leaders tend to view the companies’ dividend-paying record with great pride. While they may be just as obsessed with quarterly performance as their peers, dividend CEOs, if we can use that term, seem to have a longer-term view of things, at least insofar as their company’s position in the firmament of corporate America.

With the slowdown of manufacturing as the driver of our economy and the rise of high-tech, the cultural norms of American business have changed. Solid, mature and kind of boring is out, while cool, ultra-smart and fast is in. Another threat: Since dividend income, by definition, is received by those who directly own stocks — a small segment of the population that is easy to characterize as “fat cats” — look for the government to tinker with tax rates that apply to dividend income as it searches for revenue. If taxes on dividend income are raised, corporations will be more inclined to retain earnings and possibly buy back more stock to raise share prices, rather than pay out dividends on which shareholders would have to pay more tax.

Source: Dividend.com

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