In the year following Bush's dividend tax cuts, the Dow Jones rose 16%. When the tax cuts expire in a few months, will the market drop? One method of evaluating stocks is that they are worth the present value of all the future cash flows. This can make dividend stocks particularly attractive to investors because they get paid rent or a dividend for holding a company. If conditions change and those future dividends are no longer expected, a stock can suddenly be worth a lot less. This is a large reason why we see stocks drop suddenly at earnings announcements or when companies revise outlooks.
Dividend taxation has long been a hot political issue as profits get taxed twice: once at the 35% company level and once at the personal level. This double taxation, which was one of the highest in the developed world, can actually discourage companies from paying dividends and instead reinvest the capital in expanding the business.
Source: BloggingStocks.com
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