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Tax Cut Continues To Boost US Company Dividend Payments,
by Mike Godfrey, Tax-News.com, Washington 19 January 2005
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The 2003 dividend tax cut is prompting US firms to pay out considerably more of
their profits in the form of dividends, recent data has revealed.
After US companies paid out a record $181 billion in dividend payments to investors
last year, the latest estimate from Standard & Poor’s predicts that this
figure will be surpassed in 2005, with a 12% increase in dividends over the previous
year’s figures expected.
Dividend payments by firms in the S&P 500 dipped significantly between
1980 and 2002, from 469 to 351, as US company bosses generally preferred to reinvest
profits within the business. However, the tax cut package passed in 2003, which
reduced dividend taxation for qualifying shares to 15%, was seemingly the
catalyst for an almost instantaneous reversal in this trend.
Since the dividend tax was cut, 421 firms listed on the S&P 500 have announced
increases in dividend payouts, with 24 companies announcing dividends for the
first time, including Microsoft which distributed a massive $32.6 billion one-time
dividend in December.
According to S&P, almost 1,300 firms listed on three exchanges increased
their dividends last year.
The tax cut also appears to have boosted equity income mutual funds, while
specialist mutual funds have been created since 2003 to take advantage of the
cut.
Last year, a reported $25 billion was placed into equity income funds by investors
– almost quadrupling the $6.1 billion channelled into the funds during
2002, the year prior to the tax cut.
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