Securities Industry Association: Tax Law Changes Have Spurred Dividend Growth

The reduction in the maximum tax rate on dividends included in the Jobs and Growth Tax Relief and Reconciliation Act of 2003 has spurred dividend growth. Investors, already increasingly aware of the importance of a healthy balance sheet in making their investment decisions, have additional incentives to search out issuers that pay regular dividends; and issuers are increasingly choosing to either start paying dividends or increase existing dividends over other ways of managing historically high cash balances.

The growth in regular dividend payments following the tax reforms has been unprecedented. According to the latest issue of the Securities Industry Association’s Research Reports, personal dividend income for 2004 is expected to grow more than 10 percent from 2003’s numbers. And, with Microsoft as a very visible example, an increasing number of companies are either initiating dividends or increasing their payouts.

SIA Chief Economist Frank Fernandez concludes that, based on the benefits to date, the tax reform should be made permanent. “While we have yet to see the full impact of the dividend cut, the growth in dividend payouts has benefited both investors and issuers. It would be counterproductive not to extend the dividend tax cuts. Better still would be to remove the remaining biases and distortions by completely eliminating the double taxation of dividends.” The issue of Research Reports also studies risk disclosures in U.S. and global financial institutions' public reporting, and their development over the years since the 2001 report of the Working Group on Public Disclosure, known as the Shipley Report.

This issue of Research Reports is available at
http://www.sia.com/research/pdf/RsrchRprtVol5-8.pdf