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).