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Dividend Policy Won't Change Much Money paid out as stock dividends is currently taxed at both the corporate and individual level under the U.S. tax code. In early January, President George W. Bush proposed eliminating the tax that individuals pay on dividends. But if passed, the new policy is unlikely to change chemical company dividend payout policies--or future-oriented spending. "The effort to fix the double tax on dividends has been an issue for years, and it's good to see this finally getting attention," Rohm and Haas Chairman Raj L. Gupta says. The company has paid dividends for 75 years and has increased the payout for each of the past 25 years. Like Rohm and Haas, many established companies with a pro-shareholder stance favor the elimination of the double taxation of dividends. A spokesman for Ferro says the company approves of the change and adds that "a change in the dividend tax could change our view of the dividend payout." But Ferro would be unlikely to redirect money from its capital spending or R&D budget to boost dividends. "Our philosophy is to return money to shareholders through share repurchases and dividend payouts," says Jim Kelly, Cabot Corp.'s director of investor relations. "But we wouldn't do something foolish and jeopardize our long-term future" by redirecting funds from growth-oriented programs to dividends. He does not anticipate a significant change to Cabot's dividend policy if the President's proposal becomes law. "Major chemical companies already have established dividend policies," explains Sergey Vasnetsov, senior analyst at investment banker Lehman Brothers. "The tax change policy is likely to have less of an effect than you may expect." And without a strong recovery in profits, companies like PPG, Dow Chemical, and DuPont aren't likely to increase dividends soon. In fact, Dow has been running at a loss and has had to borrow money to pay dividends. But established chemical companies, like Rohm and Haas, Dow, and DuPont, could benefit from the tax change. In a recent research report from the brokerage firm Bear Stearns, strategist François Trahan points out that dividend-paying stocks usually outperform non-dividend-paying stocks in a flat or declining stock market like the one we have today.
COVER STORY COUNTING PENNIES TABLE 1 - RESEARCH SPENDING TABLE 2 - PLANTS & EQUIPMENT TAXING MATTERS |
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