SOURCE: Five Star Equities
NEW YORK, NY--(Marketwire - Dec 4, 2012) - A dividend tax increase has been a major concern for investors as the upcoming fiscal cliff approaches. Major companies such as Las Vegas Sands and Wal-Mart have declared special dividends or have moved up quarterly dividend payments in attempts to avoid the looming tax increase. According to Bloomberg, from the end of September to mid-November 59 companies in the Russell 3000 stock index have paid special dividends, compared to just 15 one year-ago. Five Star Equities examines the outlook for dividend yielding companies and provides equity research on Ameren Corp. (NYSE: AEE) and Pepco Holdings, Inc. (NYSE: POM).
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U.S. investors are set to face a dividend tax increase in the New Year. The current top tax rate on dividends of 15%, which was set in the Bush-era, will expire in January. If lawmakers fail to take action dividends will be taxed at the same level as wages and salaries in 2013. President Obama's plan would see the top tax rate on dividends rise to 39.6 percent for high-income earners, which doesn't include the new 3.8 percent tax on investment income added by Obama's health-care law.
"The prevailing fear is that if taxes for dividends increase, dividend yielding companies could grow less attractive and could see a multiple de-rating," said Savita Subramanian, a strategist at Bank of America Merrill Lynch.
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Ameren is among the nation's largest investor-owned electric and gas utilities, with about $23 billion in assets. Ameren companies provide energy services to 2.4 million electric and more than 900,000 natural gas customers throughout its 64,000-square-mile territory. The company currently offers investors an annual dividend of $1.60 per share for a yield of approximately 5.4 percent.
Pepco Holdings is one of the largest energy delivery companies in the Mid-Atlantic region, serving about 2 million customers in Delaware, the District of Columbia, Maryland and New Jersey. The company currently offers investors an annual dividend of $1.08 per share for a yield of approximately 5.5 percent.
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