The darlings of cautious investors are sitting on the edge of the "fiscal cliff" and feeling twinges of tax anxiety. Much to the surprise of some investors, dividend-paying stocks — sleepy investments like utilities — along with real estate investment trusts (REITs), and master limited partnerships (MLPs), all have dropped in value since the presidential election. Nervous investors fear that all three could face higher taxes next year, and some have been selling high-yielding investments rather than wait for them to decline in value amid tax concerns later.

Rather than selecting companies based simply on their high yields, Peters said, it is more reliable to pick companies such as McDonald's, with a history of growing earnings in addition to rising dividends. This is different than utilities, which tend to grow modestly. McDonald's, which has declined 2.3 percent in the dividend-stock sell-off since the election, has a 3.6 percent dividend yield. "Dividend-growth stocks have been one of the only strategies that have consistently outperformed the market over the last few years and are currently trading at the biggest discount to high dividend yield stocks in at least two decades," said Merrill Lynch strategist Savita Subramanian.

Source: Chicago Tribune

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