Market watch National Edition

JAN. 8 - Many market watchers are betting that a cut in dividend taxes would boost the stock market. Perhaps, for a time, investors will bid up prices for dividend-paying stocks as they chase after- tax yield. But we take issue with the assumption that corporations will have an incentive to raise di...

Full description

Saved in:
Bibliographic Details
Published inNational post (Toronto)
Main Author David Loeb, Merrill Ross, Wilkes Graham, Gustavo Sarago, Craig Kucera, Dana L. Telsey, Pascal Constantini, Francesco Curto and Janet Lear and Tony Crescenzi
Format Newspaper Article
LanguageEnglish
Published Don Mills, Ont Postmedia Network Inc 20.01.2003
Subjects
Budget deficits
Dividends
Earnings per share
Economic growth
GDP
Gross Domestic Product
Investments
Stock exchanges
Online AccessGet full text

Cover

More Information
Summary:JAN. 8 - Many market watchers are betting that a cut in dividend taxes would boost the stock market. Perhaps, for a time, investors will bid up prices for dividend-paying stocks as they chase after- tax yield. But we take issue with the assumption that corporations will have an incentive to raise dividends. First, no direct incentive per se will exist for corporate boards to increase payouts. The tax break isn't proposed for the corporate level. Second, as companies boost their dividends, they are taking capital away from funding their growth. It seems logical that investors will come to expect slower growth and will reward such stocks' lower multiples. We estimate that equity real-estate investment trusts and mortgage REITs trade, respectively, at seven times and 9.5 times 2003 earnings. For comparison's sake, the S&P 500 currently trades at 17.5 times 2003 estimated earnings. We remind investors that if the S&P 500 member companies were to increase distributions from the current 1.7% yield, these companies would probably trade at lower multiples to forward earnings because less equity would be retained to fund future growth.
ISSN:1486-8008