President Barack Obama securing a second term means the lower tax rate on qualified dividends for wealthier investors could be allowed to expire at the end of the year, impacting those who have piled into dividend-themed ETFs.
Obama’s re-election endangers tax breaks enacted a decade ago on dividends and capital gains, Bloomberg News reports. Investors have added over $10 billion to dividend ETFs in 2012 and the category has been very popular in recent years with individuals seeking income and lower risk in the stock market. The 32 listed dividend ETFs have seen assets grow by 40% year to date through September, Benzinga reports.
“Dividends are a big [issue], both on the tax rates and what will happen to companies’ willingness to pay,” Tim Steffen, director of financial planning in Robert W. Baird’s wealth management business, told Forbes.
According to accounting and consulting firm Crowe Horwath LLP, if the Bush-era tax cuts expire, dividend income tax rates will rise to the top individual tax rate of 39.6% from the current 15%, reports Chris Otts for Derby City Cents. [Dividend ETFs Under the Microscope]
Middle wage income earners will see the dividend tax rate increase to income tax rates, reports Jill Schlesinger for Money Watch. [Dividend ETFs, the Fiscal Cliff and Potential Tax Hikes]
Some dividend ETFs include:
- iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY): 3.48% yield
- iShares High Dividend Equity Fund (NYSEArca: HDV): 3.25% yield
- SPDR S&P Dividend ETF (NYSEArca: SDY): 3.17% yield
- Vanguard Dividend Appreciation ETF (NYSEArca: VIG): 2.11% yield
- Vanguard High Dividend Yield Index Fund (NYSEArca: VYM): 2.96% yield
- WisdomTree Dividend Top 100 Fund (NYSEArca: DTN): 3.88% yield
For more information on taxes in ETFs, visit our taxes category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own DVY.