Best Big Company Dividend Stocks (investor place)

America’s 25 Best-Yielding Large-Cap Dividend Stocks

by James Brumley | December 29, 2015 2:03 pm
Looking for some income in your portfolio? Even growth-oriented investors can appreciate dividend stocks and the payouts they provide, even if that cash is ultimately earmarked for the purchase of growth stocks. And as for income lovers: With bonds still paying next to nothing despite the Federal Reserve’s plans to start ratcheting up interest rates, dividend stocks are the only viable way to drive cash flow at a level that at least keeps pace with inflation.
[1]With that as the backdrop — and with a new calendar year being the perfect reason to reconfigure a portfolio — a closer look at the market’s biggest and best dividend stocks is merited.
It’s not a look that should be taken lazily, mind you. Sometimes a dividend yield is high simply because a stock has fallen in anticipation that its dividend will soon be cut. On the other hand, sometimes a yield is strong because the market proverbially threw the baby out with the bathwater. Even the names that have fallen due to fears of a reduced dividend, however, can sometimes make for worthy speculations.
The situation doesn’t become clear until a particular company is scrutinized.

The 6 Best Dividend Stocks to Buy in 2016[2]

Whatever the case, to help investors get their search for income started, here’s a closer look at the 25 large caps with the biggest payouts. The list was assembled without bias or assumption; it’s just a list of the market’s major dividend stocks, starting with the smallest payout and working its way to the biggest.
#25: Duke Energy (DUK[3]), 4.59% Dividend Yield: Duke Energy may be the first utility name on this list of dividend stocks for income investors to consider owning in 2016, but it won’t be the last. Utilities are among the most stable and stereotypical of dividend stocks, serving as a toll booth that all consumers are required to cross once per month … forever. That’s how Duke can afford its current 4.59% dividend yield. That said, a potentially brutal winter could spur an especially solid first quarter for Duke Energy and its peers going forward.
#24: Philip Morris International (PM[4]), 4.61% Dividend Yield: The public certainly loves to publicly hate Big Tobacco. Yet, investors certainly love to own these names too. Reynolds American, Inc. (RAI[5]) shares were up 45% in 2015, while Altria Group Inc (MO[6]) shares gained 20%. The company that income seekers want to take a puff on within the tobacco arena, however, is Philip Morris International. PM currently sports a yield of 4.61%, and despite anti-smoking efforts that seem to be worldwide, that dividend is rather well-protected, and the company has made a concerted effort to remain shareholder-friendly.
#23: Southern Co (SO[7]), 4.61% Dividend Yield: As promised, Duke Energy isn’t the only utility name to earn a spot on this list of compelling dividend stocks. Southern Company has continued to ride a rising tide of earnings growth, and has passed a big chunk of that income along to investors. That’s not going to change anytime soon. Indeed, Southern Co is wading a little further into wind and solar now[8], diversifying its production capacity, and therefore giving it some fiscal flexibility (even though wind and solar are not consistently profitable ventures).
#22: International Paper (IP[9]), 4.62% Dividend Yield: Once again, paper manufacturer International Paper is underappreciated and underestimated. Granted, it’s not a sexy business, and the dynamics of the paper market can ebb and flow enormously in just short while. It’s always an industry that lands on its feet, though, as paper usage is almost like utility usage … we can’t seem to get around it.
#21: Chevron Corporation (CVX[10]), 4.74% Dividend Yield: In light of what’s going on with the oil market, it’s tough to own a name like Chevron Corporation, even if the current yield is well above 4%. CVX seems to have a hand in every aspect of the energy market, none of which have been compelling for months. Worse still, with crude stockpiles in the U.S. rising back to unwieldy levels while OPEC remains adamant about sustaining its output[11], there’s no end in sight to the oil glut that’s making life miserable for these companies. The herd is starting to thin out, however, and it may well be a sign that things will finally start to improve for the energy market in 2016. When that happens, the biggest and the strongest survivors — like Chevron — will be well-positioned to ride the recovery wave. It just takes a little faith that nothing lasts forever.
Next Page – #20-#11[12]
#20: Verizon (VZ[13]), 4.83% Dividend Yield: Verizon usually is classified as a consumer service stock, but truth be told, it’s as much of a utility stock and a commodity as it is a service play. It’s that hybrid nature, however, that makes a telecom name like Verizon and its massive dividend so attractive. VZ may not be able to take a lot of new market share, but it’s also not giving any real share up to other players in this space. And to its credit, Verizon is also trying new things like a streaming television service[14] as a way to boost its growth opportunities.
#19: Welltower (HCN[15]), 4.89% Dividend Yield: You may know it better as Health Care REIT; the name was changed in September. The name is irrelevant, however. What matters is that this assisted-living facilities and long-term and post-acute-care facilities REIT owns 1,400 different properties, and uses them to support a dividend yield nearing 5%.
#18: Entergy (ETR[16]), 4.94% Dividend Yield: Another utility stock? Yep. Just think of it as a testament to the importance and reliability of the sector to income investors. The dividend yield for ETR is a healthy 4.94%, and like most other utility names, Entergy has a decent history of rising payouts. One key distinction with Entergy — it’s also an electricity wholesale producer.
#17: Host Hotels and Resorts Inc. (HST[17]), 5.07% Dividend Yield: Like Welltower, Host Hotels and Resorts is a REIT. Unlike Welltower, though (and as its name clearly suggests), Host Hotels and Resorts operates hotels, and directs the bulk of that income back to investors to support its current dividend yield of 5.07%. REITs must pay out at least 90% of their income to shareholders in the form of dividend to legally maintain its tax-advantaged status, and for that reason, it and Welltower aren’t the only REITs to appear in this list of dividend stocks.
#16: Ventas (VTR[18]), 5.23% Dividend Yield: Ventas is yet another REIT with a strong payout. VTR is more like Welltower than Host Hotels and Resorts in that it operates healthcare facilities. Specifically, its portfolio consists of a combination of senior housing communities, medical office buildings, nursing facilities, hospitals and more … a total of 1,300 properties in all (and it’s still not the last REIT on this list).
#15: National-Oilwell Varco (NOV[19]), 5.39% Dividend Yield: Like most other energy-related stocks, National-Oilwell Varco was a miserable performer in 2015, losing nearly half of its value. Unlike many of its sector peers and rivals, though, National-Oilwell Varco has remained profitable, and has pretty fiercely defended what has become a dividend yield of 5.39% thanks to the big pullback. NOV has remained profitable mostly because it leases equipment to explorers and drillers, and hasn’t been affected quite as harshly as other energy companies have.
#14: AT&T (T[20]), 5.52% Dividend Yield: Surely you didn’t think Verizon would appear on a list of dividend stocks that didn’t include AT&T, did you? The only difference between the two is, Verizon is paying 4.83%, while AT&T presently boasts a dividend yield of 5.52%. Don’t jump to the conclusion that T is a better way to play than VZ, however. Verizon arguably has more room for dividend growth, as AT&T already spends most of its cash flow on shareholders and has added new debt in recent years. And while its pairing with DirecTV has brought a bevy of new potential customers into the fold, it wasn’t a cheap acquisition[21] given its risk. How many more of those can AT&T afford if that’s the only growth plan it can come up with?
#13: Spectra Energy Partners (SEP[22]), 5.68% Distribution Yield: Incredibly enough, Spectra Energy Partners is the first MLP to show up on this list of strong dividend stocks to mull for 2016. It won’t be the last, however. MLPs — short for master limited partnerships — are tax-advantaged, publicly traded entities that facilitate the pass-through of income to investors the way conventional partnerships do. While theoretically any revenue-bearing operation could become an MLP, it’s a legal framework that lends itself to the nature of oil and gas pipelines and storage systems. It has been a troubled segment of the energy market of late, but the pullback from SEP has pumped up its yield to a healthy 5.68%. The question is: Can that payout continue?
#12: Las Vegas Sands (LVS[23]), 5.89% Dividend Yield: That’s not a misprint — casino owner and operator Las Vegas Sands is not only boasting a dividend yield of 5.89%, it has remained profitable against an industry headwind in Macau. Better yet, the company already announced an increase of more than 10% in 2016’s dividend payout, so the trailing yield figure understates what shareholders can expect to pocket in 2016.
#11: HCP, Inc. (HCP[24]), 5.91% Dividend Yield: The last REIT to appear on this list of dividend stocks worthy of consideration is the uncreatively named HCP. Like its aforementioned healthcare REIT peers, HCP deals in businesses such as senior living developments and medical offices, which are extremely stable sources of income that offer a great deal of growth potential as more baby boomers reach retirement age.

#10: Enterprise Products Partners, L.P. (EPD[26]), 6.17% Distribution Yield: Enterprise Products Partners is another MLP to — thanks to persistent weakness from the stock all year long — earn a spot on a list of dividend stocks to consider. EPD is the natural gas liquids business side of Enterprise Products Company, and operates more than 50,000 miles of pipelines for natural gas, NGL, crude oil and other products. Like Spectra Energy Partners, Enterprise Products Partners has technically remained profitable over the past few quarters, even while the industry has struggled. Between that and the fact that EPD was one of the first middlemen to secure an overseas supply deal[27] when the U.S. recently lifted the ban on the export of crude oil, its yield of 6.17% is surprisingly well-protected.
#9: Spectra Energy Corp. (SE[28]), 6.24% Dividend Yield: If the name rings a bell, it may be because its business counterpart, Spectra Energy Partners, was No. 13 on our list of strong dividend stocks. More important, Spectra Energy Corp. sports a yield of 6.24%. Just bear in mind the fate of one is largely tied to the fate of the other name as part of the MLP structure.
#8: ConocoPhillips (COP[29]), 6.27% Dividend Yield: Like Chevron Corporation, ConocoPhillips — the country’s third-largest integrated energy giant — is diversified across most facets of crude oil and natural gas. And unfortunately, COP has dropped as the fortunes of both commodities have dropped. On the other hand, for the same reason an investor might be willing to roll the dice on COP (anticipating at least some sort of stability for oil prices in 2016), COP may just be a worthy bet. The dividend payout of 6.27% in the meantime isn’t too shabby either.
#7: Blackstone (BX[30]), 6.45% Distribution Yield: Blackstone is one of the world’s premier global investment firms, investing in everything from private and public businesses to real estate, and offering products such as hedge and closed-end funds. It boasts $92 billion in assets under management. Just think of it as a conservative, actively managed ETF that dishes out income at a rate of 6.45%.
#6: CenturyLink (CTL[31]), 8.36% Dividend Yield: Despite being the third-biggest telecom name in the country in terms of total lines served, most investors have never heard of CenturyLink. That’s too bad, because its dividend yield of 8.36% is quite attractive. Granted, the quarterly payout took a hit in 2013, and the company has yet to boost it in the meantime. The top and bottom lines are starting to edge upward again, however, so it’s possible a shareholder-friendly CenturyLink could start to increase its dividend in the foreseeable future.
#5: Energy Transfer Equity LP (ETE[32]), 8.46% Distribution Yield: Like the Spectra duo, Energy Transfer Equity LP is another MLP that has struggled of late thanks to slumping oil and gas prices. As has been the case with so many other pipeline plays, though, the 59% setback that ETE suffered in the second half of 2015 may have been overdone, meaning the market might not let the current yield of 8.46% linger much longer. (Note that Energy Transfer Equity is slated to acquire another pipeline name appearing later on this list.)
#4: KKR & Co. L.P. (KKR[33]), 8.86% Distribution Yield: Like Blackstone, KKR is a major private equity firm that has made its coin on leveraged buyouts, boasting some $400 billion in PE deals over its lifetime. Its portfolio includes companies such as Alliant Insurance Services, GoDaddy Inc (GDDY[34]) and Toys “R” Us., but it also manages real estate holdings and manages hedge funds as well. More important to income investors, it’s presently paying out 8.86% of its value as dividends.
#3: Williams Companies (WMB[35]), 10.32% Dividend Yield: Yes, another pipeline play, and yes, another MLP … sort of. Williams Companies is majority owner of Williams Partners LP (WPZ[36]), though WMB isn’t technically an MLP in itself. The structure is irrelevant, though. What matters is that it offers a dividend yield of 10.32% … at least for the time being. Energy Transfer Equity LP will complete a merger with Williams Companies sometime in 2016, which will have an impact on …
#2: Williams Partners LP (WPZ[36]), 12.54% Distribution Yield: Williams Partners LP is 60% owned by the aforementioned Williams Companies, so it’s no surprise the two entities are found side-by-side on this list of dividend stocks. They aren’t perfect twins, however, and the other 40% of WPZ shares can and do move independently. That’s how Williams Partners sports a notably better yield of 12.54%.
#1: Energy Transfer Partners LP (ETP[37]), 12.63% Distribution Yield: Finally, pipeline MLP Energy Transfer Partners LP offers a payout of 12.63% of the stock’s price. Yes, this is the companion stock to (and is owned by, technically) Energy Transfer Equity LP, which was found in the No. 5 slot of our list of fat dividend stocks. It’s also one of the most polarizing names among income investors because the outcome of the union of Energy Transfer Equity and Williams Companies isn’t clear, but will certainly be felt by ETP owners one way or another. Whatever the case, if you can stomach the uncertainty and if you believe that consolidation can sustain strong payouts in the struggling energy industry, ETP may well be worth a look.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Finding High Dividend Stocks that are Not in Distress - Cash Flow Yield (Marketwatch)

Opinion: 10 dividend stocks for safe income as interest rates rise

By Philip van Doorn

Published: Dec 20, 2015 11:19 a.m. ET

Verizon, Altria and eight other companies probably will be less hurt by the Fed’s policy change

Verizon Communications’ stock has a yield close to 5% and plenty of ‘headroom’ to raise its quarterly payout.

As junk-bond investors have suffered acute pain heading into the Federal Reserve’s decision to increase interest rates Wednesday, dividend-stock investors can take solace because they will probably be affected to a much lesser degree.

Large-cap stocks with solid long-term dividend track records tend to outperform the broader market, no matter the interest-rate environment.

When interest rates rise, bond prices fall so that existing bond yields will match the yields of newly issued bonds (with similar ratings) with higher interest rates. The higher the yield, the more the bond will decline in value when rates rise, and increase in value when rates drop.

But that doesn’t necessarily hold true for stocks with attractive dividend yields, since companies may still be growing their businesses or have plenty of cash flow to support increasing dividends. It’s also quite likely that the Fed will take a slow-and-steady pace in lifting interest rates. The federal funds rate was been locked in a range of zero to 0.25% from late 2008 until today, when the target range was lifted to 0.25% to 0.50%. Chances are, interest rates probably will still be near record lows a year from now.

Then again, if the U.S. economy keeps growing at its current modest pace (the median estimate among FOMC members and regional Federal Reserve Bank presidents is 2.1% for 2015), the Fed projects the federal funds rate may range from 2.9% to 3.9% in 2018. The central bank clearly wants to regain effective use of its main policy tool, so that lowering rates when the next recession eventually hits, can be effective. This means a likely long-term upswing in interest rates.

If you are selecting dividend stocks, you will want to be careful to consider how likely a company may be to cut its dividend, which can be an absolute killer for the share price. The market often “prices in” anticipated dividend cuts, as we have seen this year in the energy and materials sectors. The brutal environment for commodities has affected companies in other sectors, such as construction-equipment maker Caterpillar Inc. CAT, +0.32% The stock is down 27% this year, pushing its dividend yield up to 4.61%. No one can predict whether Caterpillar will cut its dividend, especially since the company bought back $1.5 billion in common shares during the third quarter, even though it is in the midst of a major restructuring.

One way to gauge a company’s ability to raise dividends, or at least not cut them, is to divide its free cash flow per share by the share price to come up with a free cash flow yield. And that can be compared with the dividend yield. A company’s free cash flow is its remaining cash flow after capital expenditures.

To present a useful list of dividend stocks with dividend yields that appear safe, we started with the S&P 500, and then removed stocks with negative returns of 15% or more this year. After all, investors have little confidence in them.

We then pared the list to companies that have paid dividends for at least five years, while removing any that have cut regular dividends at any time over the past five years, according to FactSet.

Here are the 10 remaining S&P 500 stocks with the highest yields, as well as “headroom” to raise or maintain dividends:

Company	Ticker	Industry	Free cash flow yield - past 12 months	Dividend yield	‘Headroom’
HCP Inc.	HCP,-2.58%	Real Estate Investment Trusts	8.72%	6.23%	2.48%
Mattel Inc.	MAT,-2.46%	Recreational Products	5.99%	5.61%	0.38%
AT&T Inc.	T, -1.26%	Telecommunications	7.01%	5.56%	1.45%
Welltower Inc.	HCN,-1.15%	Real Estate Investment Trusts	6.62%	5.11%	1.52%
Verizon Communications Inc.	VZ, -1.17%	Telecommunications	10.12%	4.96%	5.16%
Philip Morris International Inc.	PM,-2.42%	Tobacco	4.68%	4.64%	0.03%
Realty Income Corp.	O, +0.16%	Real Estate Investment Trusts	5.40%	4.58%	0.82%
People’s United Financial Inc.	PBCT,-2.21%	Savings Banks	4.89%	4.11%	0.78%
Kimco Realty Corp.	KIM,-1.64%	Real Estate Investment Trusts	6.15%	3.94%	2.20%
Altria Group Inc.	MO,-2.22%	Tobacco	4.88%	3.94%	0.94%
Source: FactSet

For real estate investment trusts, we used funds from operations instead of free cash flow, because FFO is generally considered to be the best measure of a REIT’s dividend-paying ability.

Since REITs are primarily income plays, one might expect their prices to drop in a way similar to bonds when interest rates rise. But the REITs listed here all invest in income-producing properties, with the goal of increasing FFO and dividends. If their strategies are executed well, these may be excellent plays, as long as your objective is income and you can bear volatility while staying committed for the long term. Besides, if former Federal Reserve Chairman Ben Bernanke is correct, we’re likely to remain in a relatively low interest-rate environment for years to come.

Verizon Communications Inc. VZ, -1.17% is an interesting dividend stock, as it has the highest “headroom” on the list, based on the past 12 months’ free cash flow.

Interest Ratio Coverage (from WSJ)

What Is the Interest Coverage Ratio?

It measures a company’s ability to make its debt payments. Why it matters

The ratio can be calculated by dividing operating income—typically defined as earnings before interest and taxes, or EBIT—by its interest expense. (There are variations, but this is the simplest.)

“If your coverage ratio is 1, then you have no cushion,” says Dan Gode, accounting professor at the New York University Stern School of Business. Simply: When a company’s operating earnings are equal to its borrowing costs (giving it a coverage ratio of 1.0), there is no margin for error. If the business meets a rough patch and earnings drop, then the company might not be able to pay the interest on its loans. “If the ratio is north of 3 or 4, then you have some cushion,” Prof. Gode adds.

Speculation over the Federal Reserve’s interest-rate intentions comes into play. Higher interest rates for corporate borrowing will push coverage ratios down unless profits increase. For some companies, that won’t matter much; for others, it will make an already heavy debt burden harder to bear.

“Overall corporate debt might not be high, but that masks great variation” among firms, Prof. Gode says. He points to Apple Inc. as a cash-rich company with relatively little debt. “And then there are plenty that have huge levels of debt,” including some energy companies and hospitals.

Mr. Constable is a writer in New York. He can be reached at reports@wsj.com.

Middle Class Tax Breaks (Kiplinger Magazine)

Slide Show | December 2015

9 Tax Breaks for the Middle Class

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If you believe that tax breaks are for millionaires and companies with offshore subsidiaries, you’re probably paying too much to the IRS.

In recent years, lawmakers have enacted dozens of tax incentives targeted at middle-class families. Taking full advantage of these tax breaks is particularly important for dual-income couples because there’s a good chance they’ll get hit by the marriage penalty—when two individuals pay more in taxes as a married couple than they would pay if they were both single. And they work together: Lowering your adjusted gross income (AGI) with one strategy could make you eligible for other tax breaks.

The tax code offers a slew of incentives for starting a family, saving for retirement and educating yourself and your kids.

Take a look at these nine options and make sure you're not missing out.

Breaks for Saving for Retirement

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Anyone with earned income (meaning income from work rather than investments) can contribute to a traditional IRA, but not everyone who contributes can claim a tax deduction. That's a no-no for the rich if they're covered by a retirement plan at work.

Here's how the deduction rules operate for traditional IRAs: First, there's a limit on how much you can contribute each year—$5,500 ($6,500 if you'll be at least 50 years old by the end of the year) or 100% of your earned income, whichever is less. If you're not enrolled in a 401(k) or some other workplace retirement plan, you can deduct your IRA deposits no matter how high your income. But if you're enrolled in such a plan, the right to the IRA deduction is phased out as 2015 income rises between $61,000 and $71,000 on a single return or between $98,000 and $118,000 if you're married and file jointly with your spouse. The limits only apply if one spouse participates in an employer plan. If neither does, there are no income limits for taking a deduction.

Spouses with little or no earned income can also make an IRA contribution of up to $5,500 ($6,500 if 50 or older) as long as the other spouse has sufficient earned income to cover both contributions. The contribution is tax-deductible as long as income doesn't exceed $173,000 on a joint return. You can take a partial tax deduction if your combined income is between $183,000 and $193,000.

Breaks for Saving for Retirement

Save and Be Credited

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If you are single and have adjusted gross income of $30,500 or less, or you are married and have AGI of $61,000 or less, you can make out even better on a retirement contribution through the Saver's Tax Credit.

The credit is a potential bonanza for part-time workers who fall within the income limits. You can claim a tax credit worth 10% to 50% of the amount you put in, up to a maximum credit of $1,000 ($2,000 for joint filers). Contributions to a workplace plan, such as a 401(k) or 403(b), as well as contributions to a traditional, Roth or SEP IRA, are eligible for this credit.

The lower your income, the higher the percentage you get back via the credit. Some key exceptions: Taxpayers under age 18, full-time students and those claimed as dependents on their parents' returns are not eligible, regardless of their income.

And here's the beauty of a credit compared with a deduction: While deductions reduce the amount of your income that can be taxed, credits reduce the amount of tax you owe—dollar for dollar. You’ll need IRS Form 8880.

Save and Be Credited

Get Paid (More) for Working

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The government provides an incentive for people to work: the Earned Income Tax Credit.

For 2015, the maximum EITC ranges from $503 to $6,242, depending on your income and how many children you have. This program, originally conceived in the 1970s, has been expanded several times, and some states (and even municipalities) have created their own versions.

Part of what makes it popular: When the federal EITC exceeds the amount of taxes owed, it results in a tax refund—a check back to you. In essence, you're no longer a taxpayer. But, you have to act to claim the credit by filing—a step many don't take.

The income limits on this program are fairly low. If you have no kids, for example, your earned income and adjusted gross income (AGI) must each be less than $14,820 if you're single and $20,330 if you're married filing jointly. If you have three or more kids and are married, though, your earned income and AGI can be as high as $53,267. The exceptions are considerable—more complicated than we can list here—but the Center for Budget and Policy Priorities has a helpful online calculator to help you determine eligibility.

Get Paid (More) for Working

Your Child, Your Credit

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With a new baby also comes a $1,000 child tax credit to lower- and middle-income earners, and this is a gift that keeps on giving every year until your dependent son or daughter turns 17.

You get the full $1,000 credit no matter when during the year the child was born (which is why people make gags about speeding deliveries as the New Year approaches).

Unlike a deduction that reduces the amount of income the government gets to tax, a credit reduces your tax bill dollar for dollar. So the $1,000-per-child credit will reduce your tax bill by $1,000. The credit begins to disappear as income rises above $110,000 on joint returns and above $75,000 on single and head-of-household returns—although there's no limit to how many kids you may claim on a return, as long as they qualify.

And for some lower-income taxpayers, the credit is "refundable," meaning that if it’s worth more than your income tax liability, the IRS will issue you a check for the difference, as with the EITC.

Your Child, Your Credit

Get Credit for That Child’s Care

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You may also qualify for a tax credit that will reduce the cost of child care. If your children are younger than 13, you’re eligible for a 20% to 35% credit for up to $3,000 in child-care expenses for one child or $6,000 for two or more. The percentage decreases as income increases. Eligible expenses include the cost of a nanny, preschool, before- or after-school care and summer day camp.

Another way to reduce child-care expenses is to participate in your employer’s flexible spending account for dependent-care expenses. With these accounts, money is deducted from your gross salary before income, Social Security and Medicare taxes. You can contribute up to $5,000 per year.

You can’t claim the child-care credit for expenses covered by a flexible spending account. In general, families that earn more than $43,000 will save more with a flexible spending account, says Laurie Ziegler, an enrolled agent in Saukville, Wis. However, even then, you may be able to use the child-care credit to offset expenses not covered by your flex account. If you paid for the care of two or more children and contributed the maximum, you can use the dependent-care credit to cover up to an additional $1,000 in child-care costs.

Get Credit for That Child’s Care

Zero Tax on Capital Gains

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For most people, long-term capital gains (and qualified dividends) are taxed at 15 or 20%—a bargain by historical standards.

That's why some people get so exercised about a rule that allows hedge-fund managers to pay tax at the capital-gains rate rather than at rates for ordinary income, which top out at 39.6%.

But investors in the two lowest income tax brackets pay no tax at all on their capital gains and dividends. That could be a boon to retirees, who have a higher standard deduction than younger taxpayers and who are not taxed on some or all of their Social Security benefits, and the unemployed, who may have had to tap their investments to make ends meet.

To take advantage of the 0% capital-gains rate for 2015, your taxable income can't exceed $37,450 if you are single; $50,200 if you are a single head of household with dependents; or $74,900 if you are married filing jointly. Note that this is taxable income. That's what's left after you subtract personal exemptions—worth $4,000 each in 2015 for you, your spouse and your dependents—and your itemized deductions or standard deduction from your adjusted gross income.

Zero Tax on Capital Gains

American Opportunity Credit

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This tax credit, which has been extended through 2017, is available for up to $2,500 of college tuition and related expenses (but not room and board) paid during the year. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return). Single taxpayers with MAGI above $90,000 and married couples with MAGI above $180,000 are ineligible for the credit.

The American Opportunity Credit is juicier than the old Hope Credit—it has higher income limits and bigger tax breaks, and it covers all four years of college. And if the credit exceeds your tax liability (whether derived from the regular income tax or the alternative minimum tax), up to 40% of it is refundable. For example, suppose you owe $1,900 in federal taxes and qualify for the full credit. The nonrefundable portion of the credit will reduce your tax bill to $400, and the first $400 of the refundable portion will lower your bill to zero. You’ll receive the remaining $600 as a tax refund.

American Opportunity Credit

Lifetime Learning Credit

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If you want to get additional education—for virtually any reason and at virtually any school—you can tap the Lifetime Learning Credit. The credit is calculated as 20% of up to $10,000 of qualified expenses, so you can get back $2,000 per year.

The income limits for the Lifetime Learning Credit are $65,000 if single and $130,000 if married, and you can’t claim both this credit and the American Opportunity Credit for the same student in the same year. Also, no double dipping allowed: Expenses paid with funds from other tax-favored tuition programs, such as a Coverdell ESA, don’t count when figuring either credit.

Lifetime Learning Credit

More Education Breaks for Middles

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If neither the American Opportunity Credit nor the Lifetime Learning Credit works for you, there are still other ways the government offers favorable tax treatment for learning—and limits the breaks to the middle class and below.

1) Got a student loan around your neck? You can deduct up to $2,500 of interest paid on the loan each year, so long as your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return). The former student can deduct this even if it's actually Mom and Dad who are paying the bill.

2) Interest on savings bonds is usually subject to federal income tax. However, interest on Series EE and I bonds issued after 1989 can be tax-free when used to pay for qualified education expenses, if you meet certain requirements. This benefit phases out when your 2015 MAGI is between $115,751 and $145,749 for those filing jointly, and between $77,200 and $92,199 for single filers.

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Best Big Company Dividend Stocks (investor place)

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More From InvestorPlace

Finding High Dividend Stocks that are Not in Distress - Cash Flow Yield (Marketwatch)

Opinion: 10 dividend stocks for safe income as interest rates rise

Verizon, Altria and eight other companies probably will be less hurt by the Fed’s policy change

Interest Ratio Coverage (from WSJ)

What Is the Interest Coverage Ratio?

It measures a company’s ability to make its debt payments. Why it matters

The ratio can be calculated by dividing operating income—typically defined as earnings before interest and taxes, or EBIT—by its interest expense. (There are variations, but this is the simplest.)

Speculation over the Federal Reserve’s interest-rate intentions comes into play. Higher interest rates for corporate borrowing will push coverage ratios down unless profits increase. For some companies, that won’t matter much; for others, it will make an already heavy debt burden harder to bear.

“Overall corporate debt might not be high, but that masks great variation” among firms, Prof. Gode says. He points to Apple Inc. as a cash-rich company with relatively little debt. “And then there are plenty that have huge levels of debt,” including some energy companies and hospitals.

Middle Class Tax Breaks (Kiplinger Magazine)

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Verizon, Altria and eight other companies probably will be less hurt by the Fed’s policy change

Interest Ratio Coverage (from WSJ)

Middle Class Tax Breaks (Kiplinger Magazine)

Slide Show | December 2015

9 Tax Breaks for the Middle Class

Breaks for Saving for Retirement

Save and Be Credited

Get Paid (More) for Working

Your Child, Your Credit

Get Credit for That Child’s Care

Zero Tax on Capital Gains

American Opportunity Credit

Lifetime Learning Credit

More Education Breaks for Middles

Investor Help Resources

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Check Out Your Insurance Company - Ratings By A.M. Best

Dividend News

Popular Posts

Search This Blog

subscribe by email

What You Will Not Find Here

Search Amazon

Don't See What You Need? Ask A Question

Labels

Feedjit