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Is The Fiscal Cliff Bill Good For Dividend Stocks?

 January 04, 2013 10:36 AM


Thursday, the President signed the Fiscal Cliff Bill into law. So will that be good for dividend stocks? The short answer is probably "yes", if you define good as an increase in share price. However, if you were hoping for a steep decline (a.k.a. a buying opportunity) you may have to wait a little longer. Politicians are still in Washington, so the decline may still come as they work through the spending side.

Here are some key highlights of the bill:

I. Bush tax cuts preserved for individuals who earn up to $400,000 and couples who earn up to $450,000.

II. Individuals who earn more than $400,000 and couples who make more than $450,000 will see:

* Tax rates increase from 35% to 39.6%

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* Capital gains and dividend tax rate rises to 20% from 15%

* Health care reform will levy a new surtax of 3.8% on capital gains and dividends

III. Permanently addresses the alternative minimum tax and indexes it for inflation.

IV. Allows a 2-percentage-point cut in the payroll tax first enacted two years ago to lapse, which restores the payroll tax to 6.2%

V. Delays for two months $109 billion worth of across-the-board spending cuts

What's a bill without pork? According to U.S. News and World Report, the Fiscal Cliff Bill has more than its share, including:

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- Rum Producers: $13/per gallon kickback has been extended

- Electric Scooter Riders: 10% of cost of vehicle, up to $2,500 tax credit

- Hollywood: TV and movie makers can gross $15 million in breaks

- Motorsport Race Track Owners: can deduct more than $40 billion a year

- Algae and Asparagus Growers: $59 million to find a way to produce a biofuel

Overall, the bill should instill confidence in companies to raise their dividend. Below is one of the first to do so:

Sovran Self Storage, Inc. operates as a real estate investment trust (REIT) and engages in the acquisition, ownership, and management of self-storage properties. January 2nd the company increased its quarterly dividend 6.7% to $0.48 per share. The dividend is payable January 28, 2013 to Shareholders of record on January 14, 2013. The yield based on the new payout is 3.0%.

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends; it is not a list of recommend buys. As always, due diligence should be performed before buying or selling any stock. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: No position in the aforementioned stocks. See a list of all my dividend growth holdings here.

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