Dividends could be a favorable additive to an income producing portfolio full of bonds. Was it really a lost decade in the stock market? At first glance, U.S. stock indexes have been flat for the last decade. Depending on the asset allocation strategy, one’s portfolio performance may not have been much better than the S&P 500, which is still negative on a 10 year and four year basis. Yet, S&P 500 performance is typically quoted by its basic index calculation of the aggregate prices and shares of the 500 underlying companies. It does not factor in the payment of dividends or the compounding of such through reinvestment, called “total nominal return.”
Taxes on qualified dividends will remain at 15 percent. Scheduled to expire at the end of 2010, Congress extended the qualified dividend rate for another two years. For many investors who find themselves in a high tax bracket, paying 15 percent taxes on investment returns is a breath of fresh air versus one’s marginal tax bracket. Many investors are recognizing the importance of diversifying their large allocation of bonds to other asset classes. At the direction of a professional, allocating part of an investment portfolio to dividend-paying companies may be a prudent move in the present market environment.
Source: Bradenton.com
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