The American Spectator

Print Email

Text Size

The Investor

(Page 2 of 2)

With more companies offering dividends and the possibility of more still if Congress gets involved, investing for yield will become a dangerous game. After all, dividend yields are not guaranteed. If companies start throwing money at investors to make their stocks attractive, they could be taking money away from other things, and eventually find themselves having to cut those newly-generous payouts. Almost as bad as owning stock in a fraudulent company is owning one that cuts its dividend. Apart from losing that regular payout, investors flee the scene, sending the stock plummeting. (And what if some company tries to get with the program by offering a dividend, then later discovers some other great use for the money -- a great acquisition or vital R&D? To keep investors from jumping ship, it's going to have to pass.)

Finally, most of what I read suggests that Congress will probably cut the taxpayer portion of the tax rather than the corporate portion. After all, the pressure is on Congress to spread the stimulus around. If that happens, it will still be disadvantageous for a corporation to pay a dividend, compared to some other (tax-deductible) use of the money. But now you've got a nation of investors looking for dividend yield. For companies to attract those investors, they will have to spend their money on non-deductible dividends, even though they have previously been spending it on deductible items they thought would help investors more in the long run. Isn't that just as bad as a company, during the late Nineties, making a dramatic acquisition for too much money to impress shareholders?

To paraphrase Groucho Marx, I wouldn't want to own stock in any company that thinks I could outperform it.

topics:
Taxes, Business, Oil