Investors who shy away from dividend-paying stocks next year because of higher taxes will miss some of the best income sources of 2013.
Plus, there's a good chance many investors will miss the biggest dividend tax hit.
U.S. President Barack Obama, who earlier had suggested raising the dividend tax on those earning $250,000 or more, now says he wants to increase the tax on those earning $400,000 or more. Republicans have suggested raising the dividend tax on those earning $1 million or more.
Many investors wouldn't be affected by either proposal: Among Americans who receive qualified dividends – those taxed as capital gains, not regular income – 48% make less than $250,000 a year.
And there are some stocks that will be relatively immune to the fiscal cliff tax effects.
For those who will keep their money in dividends, we've highlighted some of the best picks among dividend-paying stocks for 2013, as well as some you'll want to avoid.
Dividend-Paying Stocks for 2013: A Chilean Gem
A good bet among banks does not even operate in the United States.
It's Chile's CorpBanca (NYSE ADR: BCA). Chile's fourth-largest bank, with a yield of 6.2%, has been paying dividends since 2006 and has not suspended the payout during the global financial crisis.
CorpBanca also has been growing. A recent acquisition gives it a presence in Colombia, one of Latin America's most buoyant banking markets. And more CorpBanca acquisitions in the Andean region of South America are possible in 2013.
Given it's a foreign play, CorpBanca likely wouldn't change its dividend policy based on changes to U.S. dividend tax rates or if the United States goes over the fiscal cliff.
Plus, CorpBanca's dividends dwarf those of some U.S. banks.
Two Energy Dividend Payers
Many investors who follow the energy industry know shares of refiners such as Phillips 66 (NYSE: PSX), Tesoro Corp. (NYSE: TSO) and Valero Energy Corp. (NYSE: VLO) have enjoyed impressive runs in 2012.
But such refiners aren't known for paying high dividend yields. Among the three, Valero paid the highest yield – just 2.1%.
On the other hand, the refiner Alon USA Partners LP (NYSE: ALDW), which has been publicly traded for less than a month, has forecast a whopping $5.20-per-share payout for the year ending Sept. 30, 2013. Assuming the stock continues to trade around $23, the yield would be 22.6%.
Alon also makes the list of solid 2013 dividend-paying stocks because it is structured as a master limited partnership (MLP). That means a nice dividend is to be expected, and U.S. lawmakers haven't mentioned altering the tax for MLP gains to generate additional tax revenue. So ALDW dividends should remain strong even if we fail to avert the fiscal cliff.
SeaDrill Ltd. (NYSE: SDRL), an offshore deep-water drilling company, makes our list as well – and not just because of the 9.2% dividend yield.
Like CorpBanca, SeaDrill is a foreign company – based in Bermuda – meaning U.S. dividend tax rates mean little for SeaDrill's dividend policy.
But SeaDrill's enormous yield in a sub-sector filled with low-yielding companies has led to concerns among investors about whether the high payouts will continue.
Keep in mind, though, a company's cash flow is the true determinant of its ability to pay, sustain and grow dividends.
Based on the company's usual quarterly payout of 85 cents and the number of shares outstanding, the dividend costs the firm about $395 million per quarter. At the end of the third quarter, SeaDrill had $518 million in cash.
That means SeaDrill can probably pay its dividend over the next few quarters, and its order backlog of $21.3 billion should lay to rest concerns about the future of the company's payout.
Read more Money Morning coverage of dividend-paying stocks.
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