The Post says, “Retirement is supposed to be about financial security, which explains why many senior citizens are leery of putting too much faith in an up-and-down stock market. But safe investments, such as bank CDs and government bonds, hardly provide enough income to keep up with inflation.
Larry Carrel, author of “Dividend Stocks for Dummies,” said in the past most stocks paid dividends but dividends fell out of fashion when investors focused on companies that had greater potential for capital appreciation. During the Ronald Reagan administration, he said, tax laws were changed so that capital gains were taxed at a lower rate than dividends.
“So people decided it was better to focus on stock price appreciation because those profits were taxed as capital gains, while dividends were taxed at the same rate as ordinary income,” Mr. Carrel said. “That was the main reason a lot of companies stopped paying dividends.
“By reinvesting the profits instead of paying a dividend to shareholders, it boosted the share price.”
But in 2003 during the George W. Bush administration, the dividend tax was cut to 15 percent, which was the same rate as the capital gains tax, putting dividends and capital gains on a level playing field.
Today, about 72 percent of stocks on the S&P 500 Index pay dividends, Mr. Carrel said.
“Dividends give an investor a portion of the company’s profits now, and [he] can use it any way [he wants],” Mr. Carrel said. “[Investors] get money now instead of having to wait until they sell, and that’s very powerful. You are receiving profits constantly.”
For the full story click here.
The Pittsburgh Post-Gazette story doesn’t mention ETFs, but I will. A great way to get the advantages of dividend investing with ETFs is by purchasing ETFs from WisdomTree. Every ETF launched by WisdomTree tracks an index weighted by dividend payments. This means every single stock in their funds, domestic and international, pays a dividend.