Best of the Week
Most Popular
1.Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK? - Nadeem_Walayat
2.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
3.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
4.Gold and Silver Price Ready To Go BOOM - Austin_Galt
5.Gold and Silver Potential Price Meltdown Scenario - Rambus_Chartology
6.Scottish Independence UK Catastrophe - The Balkanisation of Britain - Video - Nadeem_Walayat
7.The Price Of Gold And The Art Of War Part I - Darryl_R_Schoon
8.Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - Nadeem_Walayat
9.Heavy Gold and Silver Shorting is Bullish - Zeal_LLC
10.10 Year U.S. Treasury Short Best Place to be Remainder of 2014 - EconMatters
Last 5 days
Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - 18th Sept 14
A Public Bank Option for and Independent Scotland - 17th Sept 14
The Charade of Independence for Scotland and UKIP - 17th Sept 14
Gold Report - U.S. National Debt Surges $1 Trillion In Just 12 Months - 17th Sept 14
How to Find Trading Opportunities in ANY Market Using Fibonacci Analysis - 17th Sept 14
Why Money Is Worse Than Debt - 17th Sept 14
Can Gold Price Finally Recover? - 17th Sept 14
Scotland Independence - Europe Holds Its Breath - 17th Sept 14
The Energy Prices at Risk with Scottish Independence - 17th Sept 14
Scottish Independence SNP Lies on NHS, Economy, Debt, Oil and Currency - 17th Sept 14
The Truth Behind the Dangerous "Helicopter Money" Delusion - 16th Sept 14
Central Bank Balance Bullying: Investor Implications - 16th Sept 14
U.S. Dollar and Gold Elliott Wave Projection - 16th Sept 14
The Origins and Implications of the Scottish Referendum - 16th Sept 14
The Collapse Of U.S. Silver Stocks As Public Debt Skyrockets - 16th Sept 14
Emerging Markets Are Set Up for a Crisis, What’s on Your Radar Screen? - 16th Sept 14
Scottish Independence Bank Run Already Underway - Video - 16th Sept 14
The Emergence of the US Petro-Dollar - 16th Sept 14
Economic GDP Drives Stock Prices Inestment Myth - 16th Sept 14
Don't Miss This Gold Buying Opportunity - 16th Sept 14
Why ECB QE Is Bearish For Gold Prices - 15th Sept 14
Property Rights and Property Taxes—and Countries That Don’t Have Them - 15th Sept 14
Junior Miners Breaking Out Higher Forecasting Gold and Silver Price Bottom? - 15th Sept 14
Stock Market Patiently Waiting for Mean Reversion - 15th Sept 14
A Closer Look at the US Dollar - 15th Sept 14
The Silver Price Sentiment Cycle - 15th Sept 14
Stock Market Correction Underway - 15th Sept 14
Marc Faber - “I Want To Be Diversified, I Want To Own Some Gold” - 15th Sept 14
The Myth of Nuclear Weapons - 15th Sept 14
US Dollar Forecast to Go Much Higher - 15th Sept 14
Analysis And Price Projection Of The Uranium Market - 15th Sept 14
Bank of England Panic! Scottish Independence Bank Run Already Underway! - 15th Sept 14
The Ethics of Entrepreneurship and Profit - 14th Sept 14
The Big Investor Opportunity in the Orbital Space Junkyard - 14th Sept 14
Kohl's and The Rest of The Retailers are in Deep Doo Doo - 14th Sept 14
Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - 14th Sept 14
Stock Market Pullback Continues - 13th Sept 14
SNP Fanatics Warn of Day of Reckoning for Scottish Independence No Campaigners - 13th Sept 14
Scottish Independence Would Shake Up the Global System - 13th Sept 14
The World Order Becomes Disorder - 13th Sept 14
Is Geothermal Power About to Become The Next Great Battleground Over Fracking? - 12th Sept 14
Heavy Gold and Silver Shorting is Bullish - 12th Sept 14
Strong U.S. Dollar Undermines Gold and Silver - 12th Sept 14
Debt And The Decline Of Money - 12th Sept 14
Panic On The Streets Of London ... Can Scotland Ever Be The Same Again? - 12th Sept 14
Will The Real Silver Commercials Stand Up? - 12th Sept 14
If You Own Only One Investment, Make Sure This Is It - 12th Sept 14
Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - 12th Sept 14
Better Days Ahead For U.S. Stock And Housing Market - 12th Sept 14
U.S. Meddling Dims Prospects for Ukraine Peace - 12th Sept 14
Is the Fed Preparing to Asset-Strip Local Governments? - 12th Sept 14
China Holds “Gold Congress” - Positioning Itself As Global Gold Hub - 11th Sept 14
Fire Ice Could be Energy's Magic Bullet or a Planet-killing Catastrophe - 11th Sept 14
The Mass Psychosis Of 9 /11 Will Never Be Healed - 11th Sept 14
Radical Islam's Crisis of Competing Caliphates - 11th Sept 14
Ukraine Crisis And Self-Determination - 11th Sept 14
Cameron and Miliband Desperately Attempt to Prevent Scotland Committing Suicide - 11th Sept 14
A Supply Crunch Points to Higher Uranium Prices - 11th Sept 14
The Myanmar Shadow - 11th Sept 14
Europe Takes the QE Baton - 11th Sept 14
Full Frontal Inflation - 11th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Huge Stocks Bear Market

Dividend Stocks Forecast 2013: The Road to True Wealth Starts Here

Companies / Dividends Nov 27, 2012 - 10:01 AM GMT

By: Money_Morning

Companies

Martin Hutchinson writes: If you listen to the press, Taxmageddon is going to be a "nightmare" for dividend stocks.

There's only one problem with this scary story: It isn't true.

Of course, I'll be the first one to tell you I'm not in favor of higher taxes on dividends.


And it is true that if we fall off the "fiscal cliff" taxes on dividends will revert to the full income tax rate of each individual taxpayer.

For the top taxpayers that means the top rate on dividends will rise from 15% to 43.4% if dividends become fully taxable again.

However, that's not as bad as it sounds, which is why I believe dividend stocks will remain the place to be in 2013.

Here's why.

First institutional holders of dividend stocks are taxed at their own rate so they did not benefit from the 2003 cut in dividend taxes. That means they won't suffer from a new increase.

And even among individual investors, many have their investments in IRAs or 401(k )s or other tax- deferred accounts. These holders will continue to receive dividends that won't be immediately taxed.

As for those on more modest incomes, perhaps being retired and living mostly on their dividend income, they will pay taxes only at 15%, 25% or 28%.

These are the thresholds which have been indexed for inflation since 2001, meaning the vast majority of tax payers will never get close to the 43.4% figure that makes for great scary headlines.

But it's not just all about tax rates. There are other reasons why savvy investors should continue to invest in dividend stocks in 2013.

One of them is Barack Obama...

2013 Dividend Stock Forecast
With President Obama now set to hold office for another four years, interest rates are likely to remain very low. In fact, Fed Chairman Ben Bernanke has said short-term rates will remain close to zero until the middle of 2015.

That's true even if Bernanke's current term of office ends in January 2014, since it's likely that if President Obama replaces Bernanke, his choice will be someone like Fed Vice-chairman Janet Yellen, who is equally committed to a low-rate policy.

So while we could easily see a decline driven by sluggish earnings combined with investor suspicion of the companies' accounting policies to knock prices down, dividend payers would fall much less. That's because their yields would increase and their attraction compared to bonds would become even greater.

Of course, you would need to buy solid companies which maintain their dividends, but that's a lot easier than finding the next growth stock.

For investors, that leaves two kinds of companies to look at.

One is the relatively few "dividend aristocrats" which have increased their dividends every year for the last 30, 40 or 50 years.

These provide almost completely reliable income, so any short-term price declines can be ignored. If they're in a non-financial business, they also have the advantage of providing inflation protection, as their earnings will tend to increase with prices and their dividend increases should also keep pace.

Of course, these aristocrats tend to pay only moderate dividends, in the 2.5%-4.5% range, but that's still better than you get on bonds today, and if you're living on the income you are much better protected against a burst of inflation.

An excellent Dividend Aristocrat I recommend is Emerson Electric (NYSE: EMR) which has increased its dividend every year since 1957 and yields a solid 3.4%. Its P/E ratio at 18.2 times is higher than I'd like, but that figure drops to a satisfactory 12.2 times when based off earnings in the year to September 2014.

MLPs and REITs Remain Attractive in 2013

The other type of attractive investment is a real estate investment trust (REIT) or energy-related Master Limited Partnership (MLP), which may offer a much higher yield that can also benefit from inflation, as the price of oil or real estate rises. An attractive example is Linn Energy LLC (Nasdaq:LINE), which is an oil and gas MLP with an attractive current yield of 8%.

One of the reasons why I like MLPs and REITs is that these companies do not pay tax at the corporate level. It's one of the reasons why they generally pay a higher yield.

Because the truth is my real objection to paying individual tax on dividends is that most corporate dividends are paid out of income that has already been taxed at the corporate level, thus subjecting the income to onerous rates of double taxation (triple if you include state taxes) which may easily exceed 70%.

On the other hand-- unlike MLPs and REITs-- true operating corporations generally pay lower dividends, at a maximum of 5-6% range, for two reasons.

First, dividend payout rates have generally declined, because dividends give no benefit to holders of stock options, and so are less beneficial to company management than share buybacks.

Second, the combination of low interest rates and rising stock markets in the last 3-4 years have made even traditional dividend-oriented stocks yield much less than they used to.

That' s why in my current Permanent Wealth Investor portfolio, more than half the current holdings are funds, MLPs, REITs or other structures where the dividend is passed through to the investor, because regular dividend- paying companies with high yields and sound finances are hard to come by.

So yes, dividend stock investors need to brace themselves for higher taxes. But that doesn't mean they sell.

Whatever the results of the "fiscal cliff" negotiations, dividend investors should continue pursuing these solid wealth- building strategies in 2013.

Don't let the taxes scare you, the road to true wealth still starts here.

Source :http://moneymorning.com/2012/11/27/2013-dividend-stock-forecast-the-road-to-true-wealth-starts-here/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014