3 Reasons Not To Flee Dividend Stocks

I have been asked by many people lately if I am worried about a sell-off in dividend stocks because of the impending Bush Tax Cut expiration.  The potential dividend tax increase certainly sucks, but I'm not concerned about a selloff. In fact, if you look at previous years when Congress increased taxes on dividends, dividend paying companies typically outperformed the market as a whole. I had planned to write an article on this, but I came across one on SeekingAlplha that already explained it well.

The election night parties were barely over last week before investors started selling stocks. While renewed uncertainty over Europe did not help, the source of the volatility was closer to home: The fiscal cliff. Washington now has seven weeks to reach a compromise — a failure to do so will mean the largest fiscal drag in the post-World War II period and a possible recession.

Many investors are particularly worried that dividend stocks are vulnerable given the potential for a near tripling of the tax on dividends.  READ MORE

Trading vs Investing

I don't like Jim Cramer. I think he's a terrible person to listen to if your looking for financial advice. He's a great entertainer (which is why he has the job of hosting a television show) but he is not someone you should listen to if you're trying to build wealth. It's likely that the only person Jim Cramer will make wealthy is your stock broker because of all the buy and sell transactions he generates from his Mad Money show.

Of course, I'm not Jim Cramer's target demographic. He's not going to lose sleep at night if I'm not watching. And if you are a dividend growth investor, then he should not appeal to you either. The type of show like Mad Money will appeal to stock market traders. There are major differences between investors and traders.

MLPs and Retirement Accounts

If you're not familiar with Master Limited Partnerships (MLPs) I suggest reading my Boring Terms post for an overview. In that article I mentioned the pros and cons of MLPs and dividend investing. In short, MLPs are a great investment vehicle for generating dividend income, but because of their tax implications they aren't a great option for dividend reinvestment or retirement accounts. In fact, many brokers won't allow MLPs in retirement accounts. And that's a shame since the way MLPs are structured would make them a great choice for retirement accounts.