Utilities executives were in Washington on Wednesday to make the case for not upping the dividend tax rate. Their investors, many of whom invest for the companies' dividends, would be hurt by any significant increase to the dividend tax rate.
The dividend tax rate is currently a low 15%. If Congress lets the nation go over the fiscal cliff then the Bush tax cuts would end, bringing the dividend tax rate back to investor's ordinary income level. For the wealthiest, this would mean paying a rate of 39.6% plus a 3.8% medicare surcharge on all dividend income above $250,000.
Utilities companies are traditional dividend payers as their businesses are stable, profitable, and slow to change. Executives from NextEra Energy, American Electric Power, Southern Co (NYSE: SO ) , and PPL (NYSE: PPL ) were reported to have made the trip.
While many companies are paying special dividends out of cash on hand or taking out debt to pay special dividends, many traditional dividend payers don't have that option as they operate very efficient balance sheets already to pay out their excess cash as dividends.
Dividend-paying companies have banded together in an organization called The Alliance for Savings and Investment. The organization has been on a campaign to stop the dividend tax hike entitled Defend My Dividend. The organization has been running ads to try to get individuals to contact their congressional representatives
Beside ads, the group sent a letter expressing their concerns to Treasury Secretary Geithner back in May. They wrote: "Equity capital is the lifeblood of investment and job creation for U.S. companies. We believe the administration's proposal will limit corporations' ability to raise new capital and undermine economic growth."
The letter was signed by the utilities CEOs as well as CEOs of other big dividend payers Altria (NYSE: MO ) , CenturyLink (NYSE: CTL ) , Frontier Communications (NASDAQ: FTR ) and 12 others.
It's hoped that their voices are heard. We continue to sit and wait for any news about the fiscal cliff. The only morsel of information the media has seized upon is that the Obama administration may be willing to consider corporate tax code changes, though details were lacking. Neither side has given any details on how talks are proceeding.
Investors are worried about what will happen to the dividend tax rate and have sold off dividend paying companies. We think there's an opportunity here for enterprising investors. Motley Fool analysts recently picked one incredible utility company that presents a rare "double-play" investment opportunity today. This utility company will benefit from rising natural gas prices and provides a stable dividend while you wait. You can uncover it today, totally free, in our premium research report. Click here to read more.