Government officials are saying an increase in interest rates will likely be necessary come 2013.
“The economy is expanding at a moderate pace, and inflation is close to the committee’s 2 percent objective,” explains Fed President Jeffrey Lacker.
“As the expansion continues, the federal funds rate will need to rise in order to prevent the emergence of inflationary pressures.”
But ole Bernanke doesn’t care.
Ben’s hell-bent on keeping rates near zero at least through 2014, sending investors to the safe havens of respectable dividend-yielding stocks.
Hell, it’s not like they’ll earn a dime from CDs, bank accounts, or money market accounts as long as Ben is in charge…
And even if rates did go up, dividend stocks that provide regular payouts will give you a good chance of staying ahead of rising rates.
They may even pay you more as their cash on hand improves in a rebounding economy.
And more good news for dividend investors: The perception of jobs stabilization is giving some companies confidence to raise dividends.
Wal-Mart (NYSE: WMT) just raised its dividend from $1.46 a share to $1.59, a 9% jump. That’s on top of a 21% increase last year and an 11% jump the year before.
Pfizer (NYSE: PFE), McDonald’s (NYSE: MCD), and Coca-Cola (NYSE: KO) have all raised their dividends in recent months.
JP Morgan (NYSE: JPM) and Wells Fargo (NYSE: WFC) rushed to increase dividends after bank stress tests.
Apple announced earlier this week they will be issuing a dividend that pays out $2.65 a share starting in July.
S&P stocks are paying out just 30% of their income, compared to a historical average of just more than 50% — indicating at least 20% room for movement and the possibility that more companies will increase dividends this year.
But as profits sit atop record highs, there’s more room for dividend upside.
And that’s because these companies know dividends are good news for investors…
Join Wealth Daily today for FREE. We’ll keep you on top of all the hottest investment ideas before they hit Wall Street. Become a member today, and get our latest free report: “Options Made Easy”
It contains full details of tips on how options investing can be very simple.
After getting your report, you’ll begin receiving the Wealth Daily e-Letter, delivered to your inbox daily.
Goldman Sachs just made the argument for buying dividend stocks in a recent report, The Long Good Buy; the Case for Equities.
In the report, chief global strategist for Goldman Peter Oppenheimer explains why “the prospects for future returns in equities relative to bonds are as good as they have been in a generation… Given current valuations, we think it’s time to say a ‘long good bye’ to bonds, and embrace the ‘long good buy’ for equities, as we expect them to embark on an upward trend over the next few years.”
The Long Good Buy; the Case for Equities goes on to detail Goldman’s belief that dividends are cheap compared to bonds.
So why not run to the safe havens of respectable dividend payers?
Back in February, Obama’s budget revealed the corporate tax rate on dividend taxes would triple.
The Wall Street Journal called the 2013 budget “the gift that keeps on giving — to government”:
One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets. Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year.
Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8% — nearly three times today’s 15% rate.
Let’s be real here: This hike won’t happen anytime soon — especially not during an election year.
But let’s assume for a second it did pass…
Fewer companies would pay out dividends. Shareholders and even the government would suffer.
The revenue that Obama wants to see with a tax hike won’t materialize, leaving our U.S. Government in worse shape than it is now.
Clearly, Republicans aren’t going to give Obama what he wants on these hikes…
Right now is a great time to load up on some of the dividend stocks we mentioned above.
And be sure to stay tuned for our special dividend report, coming soon.
Stay Ahead of the Herd,
Ian Cooper
@IanLCooper on TwitterIan Cooper has been trading stocks and options for 12 years. He contributes options, stock, and energy commentary to Wealth Daily, Wealth Wire, and Options Trading Pit. He’s the Coach behind Options Trading Coach, a beginner’s guide on how to trade options. Ian teaches thousands of loyal subscribers the many ways to be profitable from options rather than simply buying stocks alone. For more about Ian, take look at his editor’s page.
