Dividends and Taxes: Dos and Dont's
Taxes on qualified dividends are low, but investors can still encounter unwelcome surprises.
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.)
Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.