interesting article, Amit. i always like the dividend topic. i think companies should pay dividends early and often. the thing about the double taxation bit...it's not like Congress just recently started taxing dividends and then companies stopped paying them in knee-jerk fashion. rather, there's been a gradual decline over the years as the stock market became a bubble. even as recently as the early 90s, the SPX dividend yield was well over 3%, which was not egregiously far from historical norms. as the mania took hold and fantasy earnings came to replace cash, people looked for all sorts of excuses why dividends were evil...and the taxman seems to be one of the scapegoats.
not that i disagree with you that tax policy would be more rational if dividends weren't double-taxed...but i don't think that's the real reason dividend yields have declined.
ironically, today's US investor is better equipped to avoid dividend taxation than investors in the past, who required much higher dividend yields across the market. why? IRAs. i stick almost all my heavy dividend payers in my IRAs and thereby avoid the double taxation. there is now what--hundreds of billions, or maybe trillions, of tax-sheltered IRA dollars that could welcome dividends without taxation, but the bubbleonian spirit and decline in earnings quality have kept US investors from demanding cash in hand.
in sum, i see taxation as the straw man, behind which hides the remains of the bubble-logic mindset. |
