Should Dividend Investors Fear Obama's Budget Plans?

Putting your political party preference aside, President Obama's proposed 2013 budget raises some legitimate concerns for all investors who rely on, or simply enjoy, dividend income.

Louis Basenese of WallStreetDaily reports: "Earlier this week, President Obama unveiled his proposed budget for the 2013 fiscal year. It includes roughly $2 trillion in new taxes and fees. And the bulls-eye is squarely positioned on investors, particularly dividend investors."

The details focus on increasing the top tax rate on qualified dividends. Taxes are currently at 15%, the proposal will raise it to 39.5%. "If we factor in the surcharge included in the health care reform package, the top dividend tax rate jumps to 43.4%."

That's a big chunk of dividend income you will never see. And it leaves investors a little lost for options. Money market funds, CDs and U.S. Treasuries are offering low yields, making high yield dividend stocks a hot commodity.

Goodbye to high yields and nice long-term returns
So dividend companies can either do nothing, or increase the payouts to investors. Many are opting for the latter, but even that may come to an end because of the proposal, which would stop the upward trend of payouts.

Most important of all, if the proposal passes, the dividend tax rate will exceed the capital gains tax by roughly 20%, (43.4% vs. 23.8%).

"Under such circumstances, companies would be fools to pay out their profits via dividends. They'd be giving away their profits to the government. Instead, they'll reinvest the money in the business to try to increase share prices. That way, both the company (via higher profits) and shareholders would benefit (via lower taxes rates)."

Dividend income for the sake of reinvestment is also at stake, meaning lower long-term returns for investors.

Business section: Investing ideas
Want to get your dividend income while you still can? Here's a list of dividend stocks with yields between 3%-6% that institutional investors and insider buyers are buying up.

Do you think these dividend companies have more value to price in? (Click here to access free, interactive tools to analyze these ideas.)

1. American Assets Trust: Operates as a real estate investment trust in the United States. Dividend yield at 3.73%. Net institutional purchases in the current quarter at 3.5M shares, which represents about 10.54% of the company's float of 33.20M shares. Over the last six months, insiders were net buyers of 76,500 shares, which represents about 0.23% of the company's 33.20M share float

2. Developers Diversified Realty (NYSE: DDR  ) : Operates as a real estate investment trust (REIT) in the United States. Dividend yield at 3.4%. Net institutional purchases in the current quarter at 8.8M shares, which represents about 4.17% of the company's float of 211.28M shares. Over the last six months, insiders were net buyers of 117,357 shares, which represents about 0.06% of the company's 211.28M share float

3. Excel Trust: Engages in financing, developing, leasing, owning and managing community and power centers, grocery anchored neighborhood centers and freestanding retail properties. Dividend yield at 5.12%. Net institutional purchases in the current quarter at 2.5M shares, which represents about 8.66% of the company's float of 28.88M shares. Over the last six months, insiders were net buyers of 13,810 shares, which represents about 0.05% of the company's 28.88M share float

4. LTC Properties (NYSE: LTC  ) : Operates as a health care real estate investment trust (REIT) in the United States. Dividend yield at 5.5%. Net institutional purchases in the current quarter at 1.1M shares, which represents about 3.72% of the company's float of 29.54M shares. Over the last six months, insiders were net buyers of 16,540 shares, which represents about 0.06% of the company's 29.54M share float

5. Maiden Holdings (Nasdaq: MHLD  ) : Provides non-catastrophe inland marine and property coverage reinsurance solutions to the regional and specialty insurers in the United States and Europe. Dividend yield at 3.41%. Net institutional purchases in the current quarter at 3.7M shares, which represents about 7.25% of the company's float of 51.03M shares. Over the last six months, insiders were net buyers of 141,488 shares, which represents about 0.28% of the company's 51.03M share float

6. Oiltanking Partners: Provides integrated terminaling, storage, pipeline, and related services for third-party companies engaged in the production, distribution, and marketing of crude oil, refined petroleum products, and liquefied petroleum gas. Dividend yield at 4.22%. Net institutional purchases in the current quarter at 7.0M shares, which represents about 22.66% of the company's float of 30.89M shares. Over the last six months, insiders were net buyers of 49,350 shares, which represents about 0.16% of the company's 30.89M share float

7. Quad/Graphics (Nasdaq: QUAD  ) : Provides print and related services in the United States, Canada, Latin America, and Europe. Dividend yield at 5.81%. Net institutional purchases in the current quarter at 2.2M shares, which represents about 9.24% of the company's float of 23.80M shares. Over the last six months, insiders were net buyers of 77,723 shares, which represents about 0.33% of the company's 23.80M share float

8. Six Flags Entertainment (NYSE: SIX  ) : Operates regional theme, water, and zoological parks in North America. Dividend yield at 5.1%. Net institutional purchases in the current quarter at 2.4M shares, which represents about 9.81% of the company's float of 24.46M shares. Over the last six months, insiders were net buyers of 87,738 shares, which represents about 0.36% of the company's 24.46M share float

9. United Bankshares: Provides commercial and retail banking services and products in the United States. Dividend yield at 4.22%. Net institutional purchases in the current quarter at 3.3M shares, which represents about 7.61% of the company's float of 43.37M shares. Over the last six months, insiders were net buyers of 9,025 shares, which represents about 0.02% of the company's 43.37M share float.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Institutional data sourced from Fidelity, insider data sourced from Yahoo! Finance.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 01, 2012, at 12:24 AM, hut234 wrote:

    Thanks for the article, even if it's about bad news. Do you know if dividend investors might seek refuge in tax-free muni-bond ETFs such as AYN, IQN, NBO, NMY, and NPG? These ETFs are protected constitutionally, and their yields, which range from about 4.8% to 5.4%, beat what's available from CDs, money market funds, and U.S. treasuries.

  • Report this Comment On March 01, 2012, at 1:52 AM, DanFPilot wrote:

    I think Obama's proposal is taxing dividends at the investors brackets, so very few people will actually pay the 39.5%. Also the 'Obama Care' dividend tax on investment income only applies to people who receive a significant amount of money from dividends and interest. The average investor won't be hurt. And of course, dividends received in 401(k)s, IRAs, etc with be protected. But it still bad news and one of the many reason I dislike the man. Hopefully the good guys will keep this from happening.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1784810, ~/Articles/ArticleHandler.aspx, 10/20/2014 7:34:19 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement