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Romney’s tax-free, guilt-free dividend plan

roeder report

David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

Updated: October 21, 2012 12:14PM



During the presidential debate last week, Mitt Romney made a point that hadn’t been clearly laid out in the campaign amid the overheated rhetoric about spending. The Republican wants to increase the ranks of the famous 47 percent who don’t pay federal taxes.

Romney stated his view that taxes should not be owed on capital gains, dividends or interest income for families making less than $200,000 a year. All are important sources of money for many middle-income people and retirees, and putting it beyond the taxman’s reach promises a massive new freebie.

President Barack Obama has said the Romney tax plan fails basic math. The new tax exclusions are just one reason why. But politicians of all leanings are seldom honest in budgetary proposals. Candidates’ promises can’t be taken as realistic, but as tendencies if they get to the muddy process of governing.

What happens if a President Romney were to get significant reductions in tax rates on investment income? Does Wall Street throw a party?

Dividends are a key issue. They already enjoy a favored 15 percent tax rate. Josh Peters, editor of the Morningstar DividendInvestor newsletter, said taking that rate to zero is unrealistic.

He also said changes in the rate probably will have little effect on the performance of dividend-paying stocks. Stocks fluctuate in response to many factors, not just the prevailing winds from Washington.

Peters noted that during the 1960s, when dividends were treated as income and the top marginal tax rate was a confiscatory 91 percent, companies paid higher dividends than they do now. “Tax rates are not a magic lever to get the outcome you want,” Peters said. “That’s something I think a lot of politicians don’t understand.”

As for the election’s impact on the market, the triumph of an incumbent, even one that many Wall Streeters actively oppose, means little. Obama was a safe bet a few weeks ago and his second term is baked in to the indexes.

A Romney win should send stocks higher, but count on the effect being exhausted before Inauguration Day. Over the last 50 years, stocks have had better returns under Democrats, which probably says less about partisanship than about pure chance.

5-POINT INVESTMENT PLAN: Which stocks would prosper in an Obama second term and which would benefit from a Romney victory? MarketWatch’s Russ Britt put the question to some analysts and came up with five favorites either way.

The “Obama stocks”: Exelon (EXC), Deere (DE), Alcoa (AA), HCA Holdings (HCA) and Facebook (FB). Why an aluminum giant? The theory is aluminum production could be favored under green initiatives. HCA is the nation’s largest hospital operator, a category that gets treated well under ObamaCare, and Facebook could be helped by Obama’s stance against Internet service providers curbing online access.

The “Romney stocks”: Cisco Systems (CSCO), Cenovus Energy (CVE), General Motors (GM), Lockheed Martin (LMT) and JPMorgan Chase (JPM). Cenovus is a bet on “drill, baby, drill” in the oil market. As for GM, the company Obama bailed out, some see it gaining if Romney cuts tax rates and puts more cash into people’s pockets. JPMorgan’s inclusion here isn’t a stretch, given Romney’s vow to “repeal and replace” the Dodd-Frank financial regulations.

GETTING SIRIUS: The news from Sirius XM Radio (SIRI) is its massive increase in subscribers, some 446,000, during its third quarter ending Sept. 30. It marked the third time management has revised upward its estimate of subscriber additions for 2012, said Zacks Investment Research.

Total subscribers at the end of the third quarter stood at more than 23 million, an increase of 9.5 percent year over year.

Zacks said the satellite radio provider is benefiting from its close ties to auto manufacturers, who are seeing strong sales. Sirius also has been able to raise subscription prices despite competition from Pandora Media (P).

Look for volatility in the stock. Liberty Media (LMCA), which owns 49 percent of the company, has declared its intention to gain majority control.

THREE TO GROW ON: Neel Kashkari, Pimco’s head of global strategy, told CNBC that despite a litany of economic woes, he sees a few stocks as offering value. He mentioned Deere (DE), Microsoft (MSFT) and Logitech (LOGI).

Deere, Kashkari said, is sitting pretty with the long-term trends of higher commodity prices and a worldwide agricultural industry in desperate need of modernization. Microsoft enjoys “very strong cash generation” and Logitech is the “premium brand in its segment,” he said.

CLOSING QUOTE: “CME is clearly the 800-pound gorilla in the futures space, and this is a good tuck-in position for them.” — Thomas Caldwell, investor in exchanges, on last week’s acquisition by CME Group (CME) of the Kansas City Board of Trade, as quoted in the Wall Street Journal



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