Raising the tax rate will steer companies away from dividends and may ultimately reduce government revenue, Steve Wynn, chief executive officer of Las Vegas-based Wynn Resorts, told analysts and investors on an Oct. 24 conference call. Wynn Resorts declared an $8-a-share dividend, including the regular 50-cent quarterly amount, payable on Nov. 20.
Wynn On Dividends
"The dividend policy of companies is very often affected by the tax policies of the government," Wynn, who owns about 10 percent of the company's shares according to data compiled by Bloomberg, said on the call. "When the taxes on the dividends are too high, then companies don't distribute, the shareholders don't get the dividends and Uncle Sam doesn't get the tax."
Industries that pay the highest dividend rates, including utilities, telecommunications and health care, will be most affected by a higher tax rate, David Bianco, the New York-based chief U.S. equity strategist for Deutsche Bank AG, said in a Nov. 9 report.
Not all investors are clamoring for dividends. James W. Paulsen, chief investment strategist at Wells Capital Management Inc. in Minneapolis, said he would prefer that his companies invest their cash to boost earnings.
"You'd like to think that you're invested in companies that have better uses of the capital than you do," he said in a phone interview. "If the best they can come up with is paying out dividends ahead of the tax code, then that says something about their opportunities in the future."
Happy Investor
Tom Higgins, a 71-year-old lawyer in Kansas City who holds Commerce Bancshares stock, might disagree. He e-mailed the bank's chairman, David Kemper, to thank him for the special dividend. The payout will provide him with some cash for the holidays without having to sell shares and will lock in the 15 percent tax rate, Higgins said in a phone interview.
"These companies show great concern for their stockholders when they recognize they have excess capital on their balance sheet and they don't have anything they're burning to buy, they return it to the stockholders," Higgins said. "It's kind of the way the system is supposed to work."