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Private Briefingwith WILLIAM PATALON III, Executive Editor
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[Editor's Note: In our latest installment of the 2013 forecast issue, Martin tackles the growing misconception about dividend stocks. As Martin explains, even with the prospect of higher taxes in 2013, dividend stocks will outperform.]
If you listen to the press, Taxmageddon is going to be a "nightmare" for dividend stocks.
There's only one problem with this scary story: It isn't true.
Of course, I'll be the first one to tell you I'm not in favor of higher taxes on dividends.
And it is true that if we fall off the "fiscal cliff" taxes on dividends will revert to the full income tax rate of each individual taxpayer.
For the top taxpayers that means the top rate on dividends will rise from 15% to 43.4% if dividends become fully taxable again.
However, that's not as bad as it sounds, which is why I believe dividend stocks will remain the place to be in 2013.
First institutional holders of dividend stocks are taxed at their own rate so they did not benefit from the 2003 cut in dividend taxes. That means they won't suffer from a new increase.
And even among individual investors, many have their investments in IRAs or 401(k )s or other tax- deferred accounts. These holders will continue to receive dividends that won't be immediately taxed.
As for those on more modest incomes, perhaps being retired and living mostly on their dividend income, they will pay taxes only at 15%, 25% or 28%.
These are the thresholds which have been indexed for inflation since 2001, meaning the vast majority of tax payers will never get close to the 43.4% figure that makes for great scary headlines.
But it's not just all about tax rates. There are other reasons why savvy investors should continue to invest in dividend stocks in 2013.
One of them is Barack Obama...
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