“The current tax rate on dividend income is 15%. Set in the Bush-era, this rate is set to expire in January unless lawmakers intervene,” Macke explains. “Under President Obama’s proposed plan, dividends would be taxed inline with wages and salaries in 2013. That would mean dividend taxes will increase to as much as 39.6% for high-income earnings. With the kicker of a 3.8% additional tax on all investment income, the effective tax for dividends could be as high as 43.4% for anything paid out next year.”
“Faced with the choice of netting 85 cents or 55 cents on every dollar of dividend income, investors prefer the former. For the companies themselves, any cash on their balance sheets as of January 1 will be worth less than it was New Year’s Eve, as far as investors are concerned,” Macke writes. “Cash that is not needed for operations and is intended to be used for dividend payments in the future should be paid out in the next month. Those who claim otherwise are wrong.”
Macke writes, “Apple has $121 billion in cash on its balance sheet, give or take a few billion. With about 941 million shares outstanding, that works out to roughly $128 per share… If Apple took all the money earmarked to pay out dividends over the next three years and paid it out now, shareholders would get $31.88 per share. If taxed at the current 15% rate, that would leave investors with $27. If that same money is paid out after January 1, it would leave shareholders in the highest tax bracket with $18 after taxes… This has nothing to do with “fair” or the 1%. The money belongs to shareholders, and the option is either to take $27 in the next month or $18 spread out over the next 3 years. It’s not a trick question; the only rational choice is to take the money now.”
Read more in the full article here.
[Thanks to MacDailyNews Reader "Rainy Day" for the heads up.]
Apple to distribute special dividend ahead of fiscal cliff? – November 28, 2012