Why tax changes would not derail US income story

Research shows us that over the long term, dividend paying stocks tend to outperform non-dividend payers and do so with less risk. Over the last 30 years, the index of equal-weighted, dividend paying S&P companies returned +8.7% annualised versus +1.5% for non-dividend paying companies.

This is generally attributed to the fact that strong companies will have cash on their balance sheets and dividends require companies to generate cash. Therefore, they must be more disciplined about how they deploy capital for the benefit of shareholders interests, and are less likely to invest money on uncertain capital expenditure projects. In recent years, there has been an increase in the number of companies paying a dividend in the US as a dividend paying culture has been adopted while investors’ appetite for income has grown. Changes to the tax policy in 2003 in the US, under th...