Stocks Paying Higher Dividends Thanks To Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

05 August 2003

After three years of declining stock markets, dividend payouts in the US appear to be on the rise once again, a fact that some experts attribute to the latest round of tax cuts, which slashed dividend tax for most investors.

According to figures quoted by S&P analyst Howard Silverblatt in the Boston Globe, 152 firms listed in the S&P 500 increased or commenced dividend payouts in the seven months to July 2003, representing a 35% increase on the corresponding period last year. Silverblatt also noted that 50 companies increased their dividend payout in the month of July alone- just weeks after the signing of the economic stimulus package by President Bush. "I've been here 26 years," Silverblatt told the Globe, adding: "I don't remember anything like this."

In the opinion of Mr Silverblatt, these figures represent a visible rebound after two decades of decline in the number of firms issuing dividends.

Those firms that have increased their dividend payout have cited the tax cut as the main factor behind their decision, although not all companies are so keen pay out profits to shareholders. "There is always some initial hesitancy and people want to watch and sit back and see what happens," Michael Mach, co-manager of the Eaton Valance fund- recently set up to take advantage of the tax cut- observed.

However, many analysts believe that the trend towards greater dividend payouts will continue in the months ahead. "In the kind of market we had in the late `90s, nobody cared that much (about dividends)," the Globe quoted Chuck Hill, director of research at Thomson First Call as observing. "But I think this is probably the start of a long-term trend toward getting back to more normal dividend payouts."

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