Dividend Tax IncreasesWhat Should You do with Your Dividend Payers?

An investor’s return on a dividend paying stock consists of two components, capital appreciation potential and dividend yield. The mix of these components can greatly effect the after-tax return of the investment.

To the extent possible, investors should look to optimize asset location as a means of maximizing after-tax investment performance.

Scheduled Changes to Dividend Tax Rates 15% to Ordinary Income ( 43.4% ) 0% to Ordinary Income ( 15.0% )

A Wealth of Intelligence

Consider locating dividend paying stocks with high potential capital appreciation and low yield in taxable accounts. (Stock A)

Consider locating dividend paying stocks with low potential capital appreciation and high yield in tax-deferred accounts. (Stock B)

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Dividend Yield - 2013

Tax Deferred Account

Taxable AccountStock A

Stock B

*assumes 0% portfolio turnover rate with dividends taxed at maximum level of 43.4%

Stock B 2% + 6% = 8% 5.4%

Stock A 6% + 2% = 8% 7.1%

Capital Appreciation

Dividend Yield

Pre-tax Return

After-tax Return*

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Dividend Paying Stocks are not created equally.

Asset Location Matters

-NJ.com

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