Andy Friedman: Dividend stocks headed for trouble

Andy Friedman: Dividend stocks headed for trouble
Pundit warns that tax increase could lead companies to buy back shares rather than boost payments to shareholders
MAY 23, 2012
Political pundit Andy Friedman, principal of The Washington Update, believes that taxes will likely be higher next year. That scenario, he said, means financial advisers should reevaluate their clients who are concentrated in one stock or who own a lot of dividend-paying stocks. If Congress doesn't act, tax rates on dividend income will nearly triple, which will affect dividend-paying stocks in a variety of ways, Mr. Friedman told an audience at the Raymond James national conference in Orlando Tuesday. For dividend stocks that also offer the chance of sizeable capital appreciation, a tripling of the tax rate will lead the issuing companies to stop hiking the payouts. Instead, Mr. Friedman says those businesses "will keep that money to buy back stock so shareholders get capital gains (instead),” he said. For companies that are bought primarily for the dividends, “the value of that stock will likely decline.” If Mr. Friedman is correct, this could make life that much more difficult for advisers, many of whom have been struggling to find streams of income for clients. If dividends shrink or are suspended by scores of companies, advisers and their clients will have to look elsewhere for yield. In this low-rate environment, that won't be an easy task.

Latest News

Ameriprise, advisor on the hook to pay Edward Jones $4.7 million in trade secrets lawsuit.
Ameriprise, advisor on the hook to pay Edward Jones $4.7 million in trade secrets lawsuit.

In a constant fight over control of clients, the financial advice industry has a long history of such allegations and disputes.

Powering retirement for Wall Street
Powering retirement for Wall Street

Retirement fintech Vestwell has hit profitability and $200 million in annual recurring revenue, powering savings programs for 750,000 employers and Wall Street’s biggest firms

Advisor moves: LPL welcomes back RayJay advisor trio in Texas
Advisor moves: LPL welcomes back RayJay advisor trio in Texas

Meanwhile, &Partners has drawn another Wells Fargo team based in Missouri, while an experienced South Carolina advisor has returned to Cetera from LPL.

FINRA fines Vanguard $950,000 over decade of cost basis errors
FINRA fines Vanguard $950,000 over decade of cost basis errors

Faulty Forms 1099 and account statements reportedly left some Vanguard brokerage customers overpaying or underpaying taxes for over a decade.

More ETFs, more opportunity, more homework
More ETFs, more opportunity, more homework

The democratization of ETFs cuts both ways

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains