When it comes to dividends, companies have historically scaled back on payouts during periods of higher tax rates. In the periods when the highest tax rates on dividend income and long-term capital gains were equivalent, such as between mid-1980s through late 1990s and in the last decade, the number of companies that issued dividends was stable. However, the number of dividend-paying companies declined sharply when dividends were taxed at higher rates than long-term gains. [Dividend ETFs and the Fiscal Cliff]
One way for investors to gain exposure to high-quality companies that add value to shareholders without issuing dividends is through ETFs that follow the Morningstar Wide Moat Focus Index. The index tracks companies that have a sustainable and competitive edge in their industry.
The Elements Wide Moat Focus ETN (NYSEArca: WMW) has gained almost 50% over the past five years, compared to the 10% loss in the S&P 500. The recently launched Market Vectors Morningstar Wide Moat Research ETF (NYSEArca: MOAT) has increased 4.7% over the past three months while the S&P 500 added 1.0%.
Market Vectors Morningstar Wide Moat Research ETF
For more information on dividends, visit our dividend ETFs category.
Max Chen contributed to this article.