Depending On Dividends

Since reaching record levels in October, the major stock market indexes have tumbled. Some sound companies that continue to pay dividends have suffered steep price drops.

Suppose you own shares in a company trading at $50 per share and paying a $2 annual dividend - that's a 4% yield. If that stock has fallen to $40 per share yet the dividend remains at $2, the annual yield is now 5%.

What's more, stock dividends generally qualify for a bargain 15% tax rate, under current law. (CD interest is taxed up to 35%.) If your taxable income is under $32,550 this year, or under $65,100 on a joint return, you'll owe no tax at all on qualified dividends.

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