Value of Dividends

Millions of Americans from all income levels and age groups own stocks that pay dividends. And dividends are an important component of shareholder value for the shareholder-owned electric utility industry.

• In 2012, all 51 EEI Index companies paid a dividend. This is the first year on record where every company paid a dividend for the entire calendar year.
• With a payout ratio of 62.3 percent for the 12-month period ending September 30, 2012, U.S. shareholder-owned electric companies continue to pay out the highest percentage of earnings among all U.S. business sectors.

Today’s low dividend tax rates make dividend-paying companies, like electric companies, more attractive to investors. This helps to increase the value of utility stocks and lowers the cost of capital, which is critical for electric companies at this time of rising capital expenditures.

The American Taxpayer Relief Act of 2012

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which prevented the nation from going over the “fiscal cliff.” As part of this legislation, dividend tax rates, which would have reverted to ordinary income tax levels in 2013, were kept low and were permanently linked to the tax rates for capital gains.

The top tax rate for both dividends and capital gains is now 20 percent for couples earning more than $450,000 ($400,000 for singles). For taxpayers below these income thresholds, dividends and capital gains will continue to be taxed at the current rates of 15 percent and 0 percent, depending on a filer’s income level. Starting in 2013, a 3.8-percent Medicare tax that was included in the 2010 health care legislation will be applied to all investment income for couples earning more than $250,000 ($200,000 singles).

The continued low dividend tax rates remain important to the industry’s ability to attract capital for investment in emissions reduction, new transmission lines, distribution upgrades, and new generation in many power markets in the years ahead. Notably, parity between dividend and capital gains tax rates was preserved, thereby not creating a disadvantage for dividend-paying companies in their capital-raising efforts.