The Looming Tax Hit Telecom ETFs Face | ETF Trends

What do the Bush tax cuts and telecommunications exchange traded funds (ETFs) have to do with one another? A lot, and it’s led telecom companies to join the fight against letting the tax cuts expire.

Five out of the top 10 highest-yielding stocks on the S&P 500 are telecom companies, reports Shayndi Raice for The Wall Street Journal. If the Bush-era tax breaks end in January, dividends would be taxed like income, which may be as high as 36.9% from the current 15%. President Obama believes wealthy Americans should be taxed at 20% on dividends.

Still, some analysts argue that telecom companies will still remain attractive because their dividend yields will still be high relative to Treasuries. Telecom companies say that letting the tax cuts expire will send their stocks off a cliff and make it tough for them to raise capital.

Overseas telecom companies are facing changes to their taxes, too.  The French Economy Minister has submitted plans to raise the value-added tax on telecom bundles to 19.6%, according to Jean-Baptiste Vey for Reuters. European regulators want France to change the way the country taxes “triple play” services that are 5.5% lower than the region’s rules on value-added taxes.

For more information on the telecom sector, visit our telecommunications category. According to the ETF Analyzer, telecom ETFs are yielding anywhere from 2% up to more than 11%. Among the telecom ETFs that may be affected if the Bush tax cuts are granted an extension include:

  • iShares Dow Jones U.S. Telecommunications Index Fund (NYSEArca: IYZ)
  • iShares S&P Global Telecommunications Index Fund (NYSEArca: IXP)
  • SPDR S&P International Telecommunications Sector ETF (NYSEArca: IST)
  • PowerShares Dynamic Telecom (NYSEAca: PTE)
  • Vanguard Telecom (NYSEArca: VOX)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.