Word: dividend
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...President's proposal to eliminate double taxation on stock dividends is a magnum opus of confusion. Want proof? It took Wall Street nearly a week to grasp one of the plan's most fundamental notions: shareholders would be no better off tax-wise with companies that pay a dividend than with those that do not. Still sinking in: dividend investors might even be hurt in the short run because the Bush plan makes it silly to own such stocks in tax-favored accounts, where most people invest...
...deleverage corporate America by making stock, not debt, a more attractive way to raise money and restore investor confidence by drawing attention to companies fit enough to boost cash payouts. The plan also encourages companies to stop dodging taxes, because only fully taxed profits could be paid as taxfree dividends. Some form of dividend-tax relief will almost surely survive any political horse trading. Here's a guide to investment winners and losers...
...STOCKS WITH A YIELD Winners. Even before the proposed plan, more companies were raising or starting to distribute dividends, and those firms were outperforming the overall market. Those trends would continue for years, as soon-to-retire baby boomers focused on the certainty of cash income over the promise of capital gains - as long as both are on equal tax footing. But there are complications. Last year 34 companies in the S&P 500, including Ford and Goodyear, paid a dividend though they lost money and paid no tax. Under the Bush plan, their dividends would be taxable...
...want to focus on companies with steady profits that are already paying a dividend. "They have the ability to keep paying and raising their dividend and have demonstrated the willingness," says Deborah Kuenstner, head of value investing at Putnam Investments. Her picks include power companies Entergy and Florida Power, oil company ExxonMobil and consumer-products maker Procter & Gamble. Other analysts like drugs (Pfizer, Wyeth), financials (AIG FleetBoston) and phones (Verizon, SBC). Proven funds that target dividends: T. Rowe Price Dividend Growth and Capital Income Builder...
...That's a level of uncertainty that Bush will have to endure. Congress will likely pass much of his $674 billion stimulus plan, including the $300 billion dividend tax cut. When that happens, the president will have placed his faith, and his fate, in Wall Street. Which is why he may be spending a lot more time in front of the television, watching CNBC and crossing his fingers...