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Investing Specialists

Dividends and Taxes: Dos and Dont's

Taxes on qualified dividends are low, but investors can still encounter unwelcome surprises.

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Note: This article is part of Morningstar's November 2015 Income Investing Week special report. This article originally appeared Oct. 1, 2015. 

Hopelessly out of vogue during the dot-com bubble, dividend-paying stocks have soared in popularity over the past decade. Investors woke up to what their grandfathers knew all along: that a company's ability to pay a dividend is a valuable demonstration of its financial wherewithal, and that dividends are a large component of the market's long-run return. Incredibly shrinking bond yields further burnished dividend-payers' appeal, as did the fact that they have outperformed non-dividend-payers by a large margin since 2000. (That time period casts non-dividend-payers in a particularly unflattering light, in that most of the technology companies that were wildly overvalued at the outset of the period did not pay dividends.)

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.