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Mark Kennedy

WisdomTree Dividend Study

By November 8, 2012

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Recently, ETF provider WisdomTree completed an analysis of the impact of a potential tax increase on dividend taxes, as well as
current and historical dividend trends. Some of the highlights from that analysis were.

  • Dividend-paying stocks are not a small segment of the U.S. equity market. As of September 30, 2012, approximately 88% of the S&P 500 Index's weight is in dividend-paying stocks. Therefore, the impact of this tax increase affects the overall market-not just a small market segment.
  • While dividend-paying investments represent the majority of the market, only about half of qualified dividends would be subject to the harshest dividend tax increases.
  • If tax fears cause dividend stock prices to fall, this could make them more attractive for tax-insensitive accounts. In fact, approx. 40% of the equities held by U.S. investors are in tax-deferred retirement vehicles, and therefore, not immediately impacted by any changes in dividend tax rates.
  • Historically, the market environment has been more important than the tax environment-dividend stocks performed well in periods of increased or high levels of dividend taxation.
  • As income becomes harder to generate, dividends may still increase in importance.

You can read more about the study on the WisdomTree research site (this opens a pdf).

WisdomTree has analyzed the potential tax
increases under our view of the worst-case scenario for dividend taxes, as well as
current and historical dividend trends. We expect that:

*         Dividend-paying stocks are not a small segment of the U.S. equity market.
As of September 30, 2012, approximately 88% of the S&P 500 Index's weight is in
dividend-paying stocks. Therefore, the impact of this tax increase affects the
overall market-not just a small market segment.

*         While dividend-paying investments represent the majority of the market,
only about half of qualified dividends would be subject to the harshest dividend tax
increases.

*         If tax fears cause dividend stock prices to fall, this could make them
more attractive for tax-insensitive accounts. In fact, approx. 40% of the equities
held by U.S. investors are in tax-deferred retirement vehicles, and therefore, not
immediately impacted by any changes in dividend tax rates.

*         Historically, the market environment has been more important than the tax
environment-dividend stocks performed well in periods of increased or high levels of
dividend taxation.

*         As income becomes harder to generate, dividends may still increase in
importance.

More information on what the Obama victory means for dividend taxation and equity
investors can be found in WisdomTree Research:

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