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Dividend Tax Cut Has Been A Partial Success, Studies Suggest

by Leroy Baker, Tax-News.com, New York

31 December 2003


It is now several months since the dividend tax cut, the centrepiece of President Bush’s economic stimulus package, was signed into law, though a clear picture as to the effect it has had on corporate and investment behaviour has yet to emerge.

According to Standard & Poor’s, up to the end of November, 2003, 1,494 firms had increased their dividend payments, 219 more than in the corresponding period in 2002. However, perhaps more telling is the fact that 95% of these companies waited until after April to increase their dividends, indicating a ‘wait and see’ policy over the tax cut bill which was being bounced around Congress like a softball in the first months of the year.

Nevertheless, fewer firms increased their dividends this year than the 1,571 that did so in the first eleven months of 1999 when the stock market was last in an uptrend, suggesting the dividend tax cut may not have had such a dramatic impact on corporate behaviour as first thought.

Still, the tax cut appears to have influenced the actions of investors who have had a greater propensity to seek stocks paying qualified dividends as opposed to those offering no dividends. A recent survey sponsored by fund manager American Century Investments found that 43% of 600 investors polled were “more likely” buy stocks paying a dividend than stocks that don’t.


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