Dividend paying stocks provide reliable income streams to investors, carrying them through the toughest economic times. Investing in stocks with high dividend yields is a sensible way to add value to the investment portfolio. Not all industries are known for their abundance of companies with high dividend yielding stocks.
Traditionally, the industries that paid the highest dividends where financial institutions and utilities. In the case of utilities, this situation arose because there were limited opportunities for investment of earnings. Companies within this industry wanted to use earnings in a fashion that provided stockholders with the greatest benefits. However, they had fixed territories so the geographic factor caused them to be limited in terms of growth.
Utilities seem to continue to be one of the high-paying industries in terms of dividends. As of November 2009, a list of stocks in the Dow Jones Industrial Index and Dow Jones Utilities Index that paid dividends over 3.25 percent were compared by one entity. The study showed that ten of the 30 Dow Jones Industrial stocks paid dividends of at least 3.25 percent. Eleven of the 15 stocks on the Dow Jones Utilities Index paid dividends in this range.
Recent tax code changes have made it more attractive for companies to pay dividends to their investors. Qualified dividends are subject to a lower tax rate than ordinary dividends. This has caused dividend payouts from many companies that already have high dividends to increase even further. A qualified dividend is an ordinary dividend that was received after the 2002 tax year.
Qualified dividends are currently subject to the same income tax rate for federal purposes as are net capital gains. The rate is either five or 15 percent, depending on an individual’s tax bracket. This favorable situation provides companies in industries outside the utilities and financial institution sectors with incentive to begin instituting dividend payments.
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