Investing continued from page 44
others as well . “ Healthcare , specific financials , industrials and consumer discretionary stocks that grow their dividends offer investors excellent value at current levels ,” says Bob Kalman , a senior portfolio manager at Miramar Capital in Northbrook , Ill .
Nevertheless , he recommends mixing high and low dividend payers . “ A combination of lower dividend , higher growth stocks and higher dividend issues [ can ] create a portfolio that balances both income and growth ,” he says .
Interest Rates
The effect of high interest rates on dividend-paying stocks is another source of some disagreement among investors . “ When competing asset classes such as bonds are paying competitive yields , many investors may choose the ‘ safer ’ option of bonds ,” says O . Emerson Ham III , a senior partner at Sound View Wealth Advisors in Savannah , Ga . “ Bonds have
“ A combination of lower dividend , higher growth stocks and higher dividend issues [ can ] create a portfolio that balances both income and growth .”
— Bob Kalman
gotten to the point where their yields are competitive even on a tax-adjusted basis .”
On the other hand , wealthy investors often prefer dividend-paying stocks to bonds , since bond payouts are taxed as ordinary income while most stock dividends are “ qualified ” for the lower long-term capital gains tax rate . ( To be qualified , the stock must be owned for a period of time and can ’ t be a holding in a pass-through company .)
Another consideration , however , is that high interest rates have increased borrowing costs , making it “ tougher for companies to borrow ” and reward shareholders , notes Gary Schwartz , president of Madison Planning Group in White Plains , N . Y .
International Markets
Many investors looking for higher dividends look overseas , since the yields in international markets are more attractive .
LPL ’ s Buchbinder favors Japan , “ where dividends have started to increase as companies focus more on returning capital to shareholders ,” he says .
Some U . S . investors are looking north . “ The Canadian market has shown more growth in dividends than many other regions , while also having a relatively stable currency ,” says Sam Burns , chief strategist at Mill Street Research in Sherborn , Mass . “ It may be worth looking at some of the Canadian dividend-paying stocks .”
There are risks in going overseas for dividends , though . “ There ’ s currency risk ,” says Schwartz , since dividends paid in a local currency can lose value against U . S . dollars . What ’ s more , he says , any gains from international securities may be subject to double taxation — in both the U . S . and the home country .
Parting Shot continued from page 60
Piketty ’ s bestseller , Capital in the 21st Century , published in English in 2014 , attributed wealth inequality ( as distinct from income inequality ) to superior returns on capital . But the current best understanding is that recent rises in wealth inequality come primarily from real estate holdings . Other researchers ( one of whom is my colleague Vincent Geloso ) dispute how Piketty and Saez measure U . S . income inequality since 1917 . An earlier Saez and Zucman paper assumed that the corporate income tax does not induce capital to shift out of the corporate sector , an improbable assumption .
To be sure , Auten and Splinter are not the first to critique the Piketty-Saez- Zucman theory of the case ; Alan Reynolds took it on in his 2006 book Income and Wealth , and Auten and Splinter cite other precursors . To its discredit , the news media did not give these results very prominent coverage — though there were notable exceptions . Nonetheless , these results will not be a surprise to everybody .
At the very least , the presumption in favor of Piketty , Saez and Zucman is now gone . For the time being , there are better arguments , based on better data , that suggest very different conclusions .
None of this , by the way , leads to the conclusion that inequality is not a problem . Gaps in life expectancy are still rising , especially for those in the bottom 10 % of the U . S . population , as defined by educational status . Nor do Auten and Splinter ’ s results contradict the notion that , in relative terms , Bill Gates enjoys a more dominant wealth and income position than Howard Hughes ever did . At the very , very top , it is still likely that income inequality has been rising . It is no accident that there has been a boom in super-yachts .
Still , when it comes to the most commonly cited statistic about income inequality — namely , the ascendancy of the top 1 %— the dominant discourse has been misleading , if not outright wrong . While dissent has been brewing for some while , it just hasn ’ t broken through . I hope that now it will .
The solution is not to do nothing . There are still plenty of major problems among Americans in the lower income and educational strata . But it would be better to treat those as issues in their own right , rather than as part of a strategy to deal with the top 1 %. In the meantime , we all should be more careful about leaping too quickly to politically convenient conclusions .
TYLER COWEN is a Bloomberg Opinion columnist , a professor of economics at George Mason University and host of the Marginal Revolution blog .
58 | FINANCIAL ADVISOR MAGAZINE | DECEMBER 2023 WWW . FA-MAG . COM