ProVise Bullets
ProVise Management Group
Ray Ferrara
October 15, 2010
- Coupled with the good news from the stock market’s strong September and an encouraging start to October, investors have even more to cheer about because of dividends. During the financial crisis and subsequent melt-down, many companies stopped paying dividends and other companies reduced them substantially. Today, things are moving in a different direction. In the third quarter of this year, out of 7,000 publicly traded companies, 299 companies increased their dividends while only 35 companies cut dividends. The dividend cuts were not severe and the increases were significant - led by many of the larger companies like GE and Microsoft. Dividends are important for several reasons. First, dividends come out of the profits/cash on the books for the company. If the company doesn’t intend to reinvest the cash into growing the company, buy back stock, or acquire other businesses, then giving it back to investors is the right thing to do. Next, companies that pay dividends and have a history of doing so even in tough times, generally suffer downturns in the market better than those companies that don’t pay dividends. Finally, given the very low yields on many other types of investments, especially bonds, dividends provide retirees with another source of cash flow which can substantially aid them in retirement. In short, there is everything good about dividends and practically nothing bad. (Source: S&P)
- While the American consumer may not be spending as much as they once were and many people wish they were, there are still some very positive things happening. Several times in the Bullets we have mentioned how debt levels have been declining and that people have not been as free with their credit card use as they have been in the past. That is to say, they are not spending money they don’t have and they are paying back some of the money they borrowed. But additionally, people are saving more and while that may be hurting the economy in the short-run, we can’t help but think this will be very positive in the long-run. On August 31, 2007, the Commerce Department said that the national savings rate was 1.7%. Fast forward three years and personal savings rate are reaching 5.8%.
- It’s hard to believe that in a little over 15 days, two years will have passed since President Obama was elected and overwhelmingly created majorities for the Democrats in both the House and Senate. As is typically the case in mid-term elections, the party in power loses seats. This year it is predicted that not only will the Democrats lose seats, but it is entirely possibly that they could take control of the House of Representatives next year, and are long shots to also take control of the Senate. As a result, there are people who fear a lame duck session.
There may indeed be a lame duck session, but our current thoughts are that there is no reason for fear. It appears that there are enough moderate (blue dog) Democrats in the House and several in the Senate as well, who will join with the united Republican group to not raise taxes on anyone, including single people with incomes of more than $200,000 or married couples with incomes of more than $250,000. It also appears that there is enough momentum to retain the 15% maximum tax rate on dividends and capital gains. Once these items are taken care of, Congress will then extend many other tax breaks like the AMT. Another important item which will cause a significant amount of last minute planning will be the likely extension of the IRA contributions to charity. If you are planning to make charitable contributions this year, and if you are over age 70 ½, you might want to hold off doing so in order to potentially utilize your IRA assets.
- We have written a couple of pieces on the new Health Reform Act in the past and the more we study it, the less we find to like, especially in how it is paid for. Anyone who is under the coverage of Medicare Part B has means testing as to how much premium they pay – the more you make, the more you have to pay. For example, if, as a single taxpayer, you earn more than $85,000 in modified adjusted gross income, or as a married couple you earn more than $170,000, you will actually pay 140% of the base premium as your premium. This percentage moves up until such time as a single taxpayer with a modified adjusted gross income of over $214,000, or $428,000 for a married couple, will pay as much as 320%. Believe it or not – that’s the good news! The bad news is that these amounts will be adjusted for inflation, but not until 2020. In other words, this is a sneaky way for Congress to increase the tax on everyone with a modified adjusted gross income of greater than $85,000.
Another provision which has a lot of people very upset was a 3.8% Medicare surtax on the profits of any home sale after 2012. In reality, the only part that is to be taxed is the amount that exceeds the capital gain exemption of $250,000 for single taxpayers and $500,000 for married couples filing jointly. Even then it will only be paid by married taxpayers with adjusted gross incomes of more than $250,000, or single taxpayers with adjusted gross incomes of more than $200,000. Any other real estate will not have these exceptions.
As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon.
RAY, KIM, ERIC, BRUCE, and LOU
©10/15/10 ProVise Management Group, LLC
This material represents an assessment of the market and economic environment at a specific point in time. Due to various factors, including changing market conditions, the contents may no longer be reflective of current opinions or positions. It is not intended to be a forecast of future events, or a guarantee of future results. Forward looking statements are subject to certain risks and uncertainties. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in these Bullets, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information contained in these Bullets serves as the receipt of, or as a substitute for, personalized investment advice from ProVise. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Information is based on data gathered from what we believe are reliable sources. The information contained herein is not guaranteed by Provise Management Group, LLC as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. The indices mentioned are unmanaged and cannot be directly invested into. . If you do not want to receive the ProVise Bullets, please contact us at: info@provise.com or call: (727) 441-9022. Please visit our Web Site at: www.provise.com.
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