Tags: Dividend | investors | tax | increase

WSJ: How Dividend Investors Can Play Tax Increase

By    |   Monday, 26 March 2012 01:11 PM

Investing in dividend stocks has proven to be most fruitful over the past three years, especially with the tax on most dividend payments set at 15 percent.

But that tax will likely rise next year, and The Wall Street Journal has several ideas for how investors might cope. Without adjustment by Congress, that 15 percent rate will jump to 43.4 percent for those in the highest tax bracket.

That includes the top income tax rate of 39.6 percent, as all dividends will once more be taxed as regular income, plus a 3.8 percent tax on investment income implemented as part of the 2010 healthcare reform.

So what should investors do?

“Dividend investors could protect themselves in the short term by placing options bets on a broad decline in dividend-paying shares, but that strategy is expensive,” writes Journal reporter Jack Hough.

“A better course for most is to seek a balance of income and growth stocks. In the income-stock portion, investors should favor those that promise to boost their dividend payments over those that merely have the largest dividend yields."

TheStreet.com compiled a list of the 10 most popular dividend stocks held by top mutual fund managers: GlaxoSmithKline (5.9 percent yield), Eli Lilly (4.9 percent), Merck (4.5 percent), Pfizer (3.7 percent), Sysco (3.6 percent), Johnson & Johnson (3.5 percent), Vodafone (3.5 percent), ConocoPhillips (3.4 percent), General Electric (3.3 percent), Unilever (3 percent).

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Monday, 26 March 2012 01:11 PM
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