With the tax cut extension passed in the Senate and now working its way through the House of Representatives, the tax rate on dividends is almost certain to stay at its current rate of 15%. This is a major relief for investor because the tax on dividends might have risen to as much as 40% for top earners. Also good news for dividend paying stocks is the fact that corporations are sitting on record levels of cash. Corporate cash levels are the highest since 1959 making up an average of 7.4% of companies’ values.
In the wake of the financial crisis companies slashed dividends by $52 billion, making it arguably the worst year ever for dividend payments. In 2010, however, about half the companies in the S&P 500 increased dividends, raising payments by 5.6% over the previous year. Howard Silverblatt of S&P 500 predicts that dividend payouts will increase another 8% in 2011.