YCHARTS DIVIDEND DAILY: Tax Hike on Dividends? Seems Unlikely, and Buybacks are a Decent Alternative
The Wall Street Journal’s editorial page sounded the alarm (it sounds an alarm every day) yesterday on President Obama’s proposal to tax dividends at rates equal to earned income. Regardless of where you stand on this, it’s true that significantly higher tax rates on corporate payouts would likely discourage dividends. Why pay them out if recipients are going to be taxed heavily? CEOs and boards, dwelling almost exclusively in the top tax brackets, are super sensitive to taxes. But really, as long as there’s a Republican majority in the House of Representatives, it seems unlikely an across-the-board tax hike on dividends is going anywhere. What's more, even if such a change did go through, companies pay out far more in stock buybacks than in dividends already, and they’d likely further tilt in that direction. And so long as capital gains rates remain low, today’s dividend lovers would need to become tomorrow’s regular and judicious sellers of small numbers of shares. It’s going to be OK. Exxon (XOM), Procter & Gamble (PG), Coca-Cola (KO) and other cash flow champs will send money back to investors one way or another.