Michael Clark, manager of the £1bn Fidelity Moneybuilder Dividend fund, says that while the outlook for UK dividends is ominous, investors can still obtain income growth from certain FTSE-listed stocks.
Prompted by the desire to avoid higher taxes on dividends as part of President Obama's desired tax hikes on investment income in 2013, a record number of U.S. companies acted to pay out record levels of dividends in the final quarter of 2012 [Excel spreadsheet] .
By Parsimony Investment Research:On December 31, 2012, all of the Bush-era tax cuts are set to expire, including the very favorable 15% tax rate on qualified dividends. In addition, for individuals earning $200,000 and couples earning $250,000, there will also be a new 3.8% tax rate that comes as part of the Affordable Care Act on certain types of income, including dividends, capital gains and rental income. With no action between now and then, the top tax rate on dividends will nearly triple to 43.4%.
Interest rates are barely above zero in the US, but that may not last for long as the list of developed countries that are now at negative interest rates is growing.
The Bank of Japan joined the NIRP club in late January, and the outlook for income investors became even drearier.
Alex Trias submits:By now, most of us are familiar with the credit default swap, which is a derivative security that a bond investor may purchase as “insurance” against the bond issuer’s bankruptcy. If the bond issuer goes bankrupt, then the credit default swap issuer will pay the investor a pre-arranged amount, offsetting the investor’s losses on the bond.
According to Standard & Poor [Excel Spreadsheet], in March 2013, 73 publicly-traded companies in the U.S. acted to cut their dividends, the most since the all-time record of 93 was set in December 2012. To put those numbers in perspective, in a typical month when the U.S. economy is not being dragged down by recessionary conditions, fewer than 10 companies will act to cut their dividends.
On the first day of 2013, the amount of taxes that top U.S. stock market investors will have to pay on the dividends they earn will increase. The only question at this point is by how much. Will taxes on dividends rise from 15% to 18.8% because of the ObamaCare tax on investment income that will take effect on that date or will dividend taxes rise from 15% to 43.4% thanks to the additional tax increase related to the 2003 Bush-era tax cuts that are currently set to expire after the last day of 2012?
Jim Trippon submits:As income investors, we're normally looking for the companies that are in a position to continue paying their dividends. That's the bare minimum requirement. Taking things a step further, an income investor's research should delve deeper into a company's financials to evaluate the potential for future dividend increases.
Jim Trippon submits:We all know how the bank dividend story goes. Big money center banks based here in the U.S. and several of their large European counterparts got drunk off the easy money, easy credit cocktail that flowed so freely from 2005-2007.