The fiscal cliff that hits Jan. 1 has some tricky implications for dividend stocks.
Congress could do anything from acting to keep the top dividends tax rate at 15 percent to staying on the sidelines, which would send it soaring to 39.6 percent, plus a 3.8 percent surtax on investment income for high-income earners.
One issue is what companies that pay dividends will do. Those corporations that would normally pay a dividend in January can push payment up to December, without any negative financial ramifications, The Wall Street Journal reports.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
Many companies want to see what action Congress takes — or doesn’t take — before they decide on the timing of their dividend payouts, analysts tell the paper.
In late 2010, when it appeared Congress might let dividend taxes increase, about 25 companies, including Sara Lee, accelerated dividend payments to December 2010 from January 2011.
However, some experts worry that companies will use higher tax rates as an excuse to avoid paying dividends.
Apple began paying dividends in August after a seven-year hiatus.
But if the dividend tax leaps to the 39.6 percent rate, "I can see them saying, 'Screw it. Why pay it out when your investor is going to get killed on taxes?'" Cliff Caplan, a financial planner at Neponset Valley Financial Partners, tells The Associated Press.
Those who depend on dividend stocks for their income might feel compelled to seek out riskier assets as a result of the tax increase, investment adviser Adrian Day tells the news service.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
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