Are Your Dividends Safe in 2013?
lobbying companies to reduce dividend payouts in favor of reinvesting the cash back into the business. In theory, this allows the value of the underlying asset to rise (increasing a personal balance sheet) without paying taxes on cash distributions.
Recently, even tech titan Apple (NASDAQ:AAPL) got into the dividend game. The company currently pays a ~2 percent dividend to loyal shareholders. However, the ROI on that cash could be much higher if Apple can reinvest that money into the core business and inflate the current stock price. Strong companies such as Apple have a very real cost-benefit calculation to make in this situation, especially if large shareholders start complaining and lobbying.
On the other hand, some companies may not have a way to leverage as much growth as Apple. For example, a utility company like Duke Energy (NYSE:DUK) pays a 4.9 percent dividend yet may conclude that’s the best use of their cash despite changes in tax rates. Moreover, a company like Duke Energy likely has a large constituency of both retirees and institutions who have invested specifically for the yield. Therefore, an dividend policy changes would require an uphill battle when compared to Apple.
So, are your dividends safe in 2013? Depends on the underlying company. However, if you consider the examples of Apple and Duke above, you’ll have a good model for making an educated guess about the safety of your dividends this year.
Don’t Miss: Apple’s 4 New Patents to Kick Off 2013.