The specter of higher taxes is no reason to stay away from dividend stocks, which still represent a strong investment choice, money managers say.
If Congress doesn’t take action before Jan. 1, the top dividend tax rate will increase to 39.6 percent from 15 percent now.
"I really don't see any change in the argument that you have to come back eventually to high-quality, dividend-paying stocks that have the ability to raise their dividends over time," Ben Fischer, a portfolio manager at Allianz Global Investors, tells CNNMoney.
Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.
With U.S. companies sitting on $1 trillion in cash, there are plenty that can raise their dividends.
And for those who buy dividend stocks in their retirement account, taxes aren’t an issue, as money in a retirement account isn’t taxed.
Given the fact that 10-year Treasury yields are negative after inflation, there aren’t a lot of conservative income-producing investments outside of dividend stocks.
"When you look at yields on fixed income, where else are you going to go?" Bernard Kavanagh of Stifel Nicolaus tells CNNMoney.
Another reason why the tax issue shouldn’t hurt dividend stocks is that only half of households owning them have annual income above $250,000, says Jeremy Schwartz, director of research at ETF manager WisdomTree.
That’s the threshold for the tax increase proposed by President Barack Obama.
“I don’t think the dividend trade is overcrowded,” Schwartz tells Yahoo.
Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.
© 2013 Moneynews. All rights reserved.