In search of yield market perspectives september 2012
In Search of YieldFinding Equity Income in a Low-Yield World iShares Market Perspectives | September 2012
iSHARES MARKET PERSPECTIVES  The combined effect of a synchronized globalExecutive Summary deleveraging and deteriorating demographics suggests that much of the developed world is likely to be stuck in a slow growth mode well beyond 2012. Consequently, with demand for capital low and central banks determined to maintain real rates at or below zero, investors are likely to remain yield-starved for the foreseeable future. Among the many implications of a low-yield regime, one of the most significant is that investors will need to continue to look beyond fixed income instruments in their search for income. Fortunately, dividend yields on equities are relatively high, at least compared to the standards of the past two decades. More importantly, relative to fixed income alternatives, dividend yields are actually close to a record high. That said, after four years of struggling in a zero-rate world there are segments of the equity income market that appear stretched and should probably be avoided. In particu- lar, some of the more defensive sectors—notably US utilities—look expensive given investor preference for yield as well as safety. However, outside of these areas we continue to see good opportunities for income-hungry investors. Russ Koesterich, In particular, we see reasonably valued markets with attractive yields—above 3%—in Managing Director, iShares Chief developed Asia, Northern Europe and select emerging markets. In addition, at the sector Investment Strategist level we find energy stocks attractive as they not only offer a reasonable yield, but are also cheap and offer a natural hedge should inflation start to rise. Meanwhile, investors searching for income are reasonably worried whether a yield-oriented strategy is the right approach should the tax rate on dividends rise post-2012. On this, history offers little guide. Prior to 2003, dividends were generally taxed the same as ordinary income, so there are few historical precedents on what happens following a unilateral rise in the dividend tax rate. While obviously a risk, we don’t believe this possibility changes the basic argument for a dividend tilt. As of today, the most likely scenario remains a temporary postponement of the fiscal cliff, with the second most likely outcome being a complete failure from Washington and a broad tax increase. Under this latter scenario, the general economic drag will be so large as to render the dividend tax issue less relevant: instead of worrying about the tax rate on dividends, investors will need to contend with the prospect of another recession.
iSHARES MARKET PERSPECTIVES  Dividend Yields: Better Than the Alternative As has been pointed out by many commentators, one silver lining is that while income is increasingly scarce in fixed income instru- The absence of alternatives clears the mind marvelously. ments, it is more readily available in equities. Dividend yields still —Henry Kissinger remain low compared to the bear- market bottoms witnessed in the 1970s and 1980s, but by the standards of the past 20 years equity Most income-oriented investors in developed countries face a yields are, for the most part, at the upper end of their recent range. stark choice: take on more risk or accept lower income. This was not always the case. Up until five years ago, it was still possible to Even in the United States, where dividend yields remain relatively generate a reasonable yield with little or no risk. For example, since low, yields have crept above their 20-year average.The S&P 500 1982 the average yield on 90-day Treasury bills has been 4.70%.1 Index (S&P 500) is yielding approximately 2.1%, slightly better than In other words, investors could earn roughly 5% on what was the 20-year average of 1.95%. effectively a risk-free investment. Nor is this average simply an artifact of the early 1980s, when yields were well into double digits. Outside the United States, the picture looks more enticing. Starting As recently as the summer of 2007, it was still possible to earn with developed markets, the dividend yield on the MSCI World 5.25% and get a good night’s sleep.2 Index is 2.9%, roughly 1.5 standard deviations above the 20-year average.4 Investors willing to invest in emerging markets may do Today, investors would need to accept a substantial amount better still. The yield on the MSCI Emerging Markets Index at 3.2% of both interest rate and credit risk to achieve a yield even is also comfortably above its 20-year average.5 approaching 5%. Yields on short-term Treasuries have been below 1% since the fall of 2009, and even an investor willing to take the Yields of 2% or 3% don’t normally set investors’ hearts aflutter, but questionable step of lending to the United States for the next 30 it is important to put these yields in the context of the current years would only receive a 2.50% coupon.3 environment. While many investors can still remember a 4% yield in the United States, the last time that was available the world Unfortunately, this situation is unlikely to change in the near term. looked quite different. Although the S&P 500 yielded 4% in the fall In addition to the Federal Reserve Board’s (the Fed’s) guarantee of of 1990, equities had to compete with Treasury bills that were still “low for long,” the peculiar nature of the recovery—hampered by yielding more than 7% and corporate bonds yielding well above the ongoing global deleveraging—suggests that growth is unlikely 10%.6 to pick up substantially in 2013. This means that investors may be facing a low-yield environment for many years to come. Today, equities compare much more favorably with their fixed income competitors, and even more favorably with cash. Leaving aside the rock-bottom yield available in developed market Figure 1: MSCI World and EM Dividend Yield sovereign debt, equity yields still look attractive when compared (1995 to Present) against a less manipulated benchmark—investment grade 5% corporate bonds.12m Dividend Yield 4% Figure 2 compares the yield on the MSCI World Index with the yield on the Moody’s Baa Bond Index. Currently, investors can replicate 3% Figure 2: Equity vs. Bond Yields 2% (1995 to Present) 0.7 1% 0.6 1/95 1/98 1/01 1/05 1/08 1/11 Yield MSCI World/YTM Moody’s Baa Index 0.5 MSCI World MSCI EM 0.4 Source: Bloomberg, as of 6/30/12. Index yields are for illustrative purposes. Indexes 0.3 are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. 0.2 0.1 1 Source: Bloomberg 6/30/12. 0.0 2 Source: Bloomberg 6/30/12. 1/95 1/98 1/01 1/05 1/08 1/11 3 Source: Bloomberg 6/30/12. 4 Standard deviation is a measure of how widely values are dispersed from the average value (the mean). Source: Bloomberg, as of 6/30/12. Index yields are for illustrative purposes. Indexes 5 Source: Bloomberg 6/30/12. are unmanaged and one cannot invest directly in an index. Past performance does not 6 Source: Bloomberg 6/30/12. guarantee future results.
iSHARES MARKET PERSPECTIVES nearly 60% of the yield on the Baa Bond Index by investing in the long-term average of 22%. Nor is this simply a US phenomenon:MSCI World benchmark, close to the record witnessed last fall. By companies in most developed countries continue to enjoyway of comparison, the long-term average is around 30%. Even in near-record profitability. The ROE for firms in the MSCI Worldearly 2011, investors could only replace roughly one-third of the Index at 22% is also close to a record high. Even in emergingincome of the Baa Bond Index with a broad equity index. At least on markets, profitability remains well above the average at roughlya global basis, equity yields look competitive when compared to 20% (see Figure 3).the income available in the bond market. Overpaying for Income?While the United States looks less interesting than the rest of theworld from a yield perspective, even in the United States yields While we see a good opportunity in dividend-paying equities,appear more generous on a relative basis. Repeating the same we’d be reluctant to pursue that opportunity at any price. As thisexercise using the S&P 500, we find the average ratio between trade has been advocated for some time, many investors arethe yield on the S&P 500 and the yield-to-maturity (YTM) on the reasonably concerned that this theme has become too crowded.MOODY’S Baa Index is 29%. Today it is nearly 42%. While the For some sectors, this is probably true.absolute level of yields in the United States is close to its 20-yearaverage, even this relatively paltry level looks more interesting To the extent that some parts of the dividend trade have gottenwhen compared to the alternatives.7 crowded, this is not just a function of the search for yield, as many investors have been stretching for yield for a different,Can Yields Hold? although somewhat related, reason: dividend stocks tend to have low betas, i.e., are less volatile than the broader market.Dividend yield, like value, can be an incomplete metric. Yieldswill mechanically rise when stock prices fall, much as they did The turmoil of the last several years has left many investors within 2008. While this creates the temporary illusion of value, it a diminished appetite for risk. To the extent investors have notassumes that the dividend can be maintained. This proved untrue, entirely fled the equity markets, there is a marked preference forespecially for financial stocks, during the 2008 crisis. Banks were stocks that are perceived as “safe.” Utility companies, and otherforced to cut dividends to replenish their capital base. low-beta sectors, have been the prime beneficiaries of this trend. It is this part of the dividend space where we would be the mostToday, the environment may be bleak and the outlook little concerned.better, but one bright spot is the corporate sector. Despite theoverall economic malaise, investors have a reason to feel more Utilities are probably the best example of a dividend sectorsecure in the sustainability of dividend streams. While equity where investors are paying too high of a premium for yield. As amarkets have been struggling since the spring, today’s yield is result, this is one part of the dividend space we would avoid.not a function of a bear market, as it was in late 2008, but ofsteadily improving corporate earnings. US utilities are currently trading at nearly 15x earnings, com- pared to an average since 1995 of around 14.5x. The stocks areAs we’ve discussed previously (see “Stand or Fall: Record Profits.How Much Longer?” April Market Perspectives), given all of thetroubles in the world investors continue to be pleasantlysurprised by the resilience of corporate profits. Granted, growth Figure 3: Return on Equityis being driven by a ruthless attention to costs—coupled with (1995 to Present)the tailwind of cheap money and anemic wage gains—rather 26% Return on Common Equitythan by stellar top-line growth. Nevertheless, for investorsprimarily concerned about the consistency of their income 22%stream, there is some comfort in the fact that companies haveremained profitable in the midst of the worst economic recovery 18%in generations. 14%Companies in the United States continue to be among theworld’s most profitable. The return on equity (ROE) for compa- 10% 1/95 1/98 1/01 1/05 1/08 1/11nies in the S&P 500 averages 27%, significantly above the MSCI World ROE MSCI EM ROE Source: Bloomberg 6/30/12.7 Source: Bloomberg, as of 6/30/12. Past performance does not guarantee future results.
iSHARES MARKET PERSPECTIVES even more expensive when you compare their valuation to the factor favoring utility stocks is the thirst for yield. In an environ-broader market. Typically, utilities trade at a discount to the ment in which the 10-year Treasury is barely paying 1.50%, thebroader market as this is a regulated, slow growing industry. 3.50% yield on US utilities looks enticing. 12 In short, in the questSince 1995, utilities have traded at an average discount of for both yield and safety, utilities were a natural beneficiary.roughly 25% to the S&P 500. However, today utilities are trading However, given high relative valuations and mediocre profitabil-at more than an 8% premium, the largest since late 2007. 8 ity, we believe there may be better alternatives for investors willing to cast a wider net.One argument supporting that premium would be if the sectorhad undergone a secular improvement in profitability. Given the Where Do We Find Yield? Look Abroadregulated nature of the utilities industry, this would be a difficulttrick. In fact, today the US utilities industry is actually marginally Rather than focus on a particular sector, our general preference isless profitable than its long-term average. ROE for US large to access high-dividend companies through broad, diversifiedcapitalization (large cap) utility companies is currently 10.5%, country funds. This approach helps to mitigate the idiosyncraticthe lowest level since 2004, compared to an average of 13.25%.9 dangers associated with one sector or industry. For example, in the United States we’d favor a multi-sector fund with a smallerWhen you adjust valuations for profitability, US utilities look even allocation to utility companies, such as the iShares High Dividendmore overvalued. Historically, you can explain roughly 25% of the Equity Fund (HDV).variation in the US utilities sector’s relative value by adjusting forthe ROE. For every 1% increase in ROE, the multiple of the sector Interestingly, some of the best yield opportunities are actuallytypically increases by 1.4%. Today, with ROE at around 10%, you outside of the United States. This is at least partly a function of thewould expect the utilities sector to trade at around a 27% fact that the United States generally trades at a premium to mostdiscount to the S&P 500, rather than an 8% premium. 10 other countries. Currently, the S&P 500 trades at approximately 2x book value. In contrast, a global benchmark—the MSCI ACWISo why are investors paying a near 10% premium to invest in a Index—trades at roughly 1.6x book. 13sector whose profitability is close to an eight-year low? Theanswer is that utilities have benefited from two big trends—a flight to safety and a flight to yield. Utilities typically benefit Figure 5: Dividend Yield by Countrywhen risk aversion is high, as the sector has had the lowest beta,only 0.5, of any of the 10 economic sectors.11 In other words, for Czech Republic Finland Spainevery percentage point the S&P 500 moves, utility stocks only Norway Polandmove about half that amount, a desirable characteristic when New Zealand Australiainvestors are worried about downside protection. The second Taiwan Italy Brazil Morocco France Singapore United Kingdom SwedenFigure 4: US Utilities Relative Valuation Germany Colombia(1995 to Present) South Africa Russia Hungary 1.2 MalaysiaP/E US Utilities vs. P/E S&P 500 China 1.1 Hong Kong Netherlands 1.0 Israel Peru Thailand 0.9 Indonesia Belgium 0.8 Canada Austria Egypt 0.7 Chile Switzerland 0.6 Philippines Japan 0.5 Turkey United States Denmark 0.4 Mexico 1/95 1/98 1/01 1/05 1/08 1/11 India South Korea 0% 1% 2% 3% 4% 5% 6% 7% Source: Bloomberg, as of 6/30/12. Utilities are represented by the S&P Utility Index. Past performance does not guarantee future results. Source: Bloomberg, as of 6/30/12. Country yields represented by MSCI country index yields. Index yields are for illustrative purposes. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. 8 Source: Bloomberg 6/30/12 as represented by the S&P Utility Index. 9 Source: Bloomberg 6/30/12. 10 Source: Bloomberg 6/30/12. Source: Bloomberg 6/30/12. 12 11 Source: Bloomberg 6/30/12. The other sectors are consumer staples, consumer Source: Bloomberg 6/30/12. 13 discretionary, energy, financials, healthcare, industrials, materials, technology, and telecommunications.
iSHARES MARKET PERSPECTIVES With valuations lower, depending on risk tolerance, investors can When we compare the list of high-yielding countries to our countrypotentially increase their dividend yield through a focus on non-US rankings, there is a subset of countries that have the potential tocompanies. Figure 5 illustrates just how low the US dividend yield offer both yield and the prospect for capital appreciation. Theis compared to the rest of the world. At 2.1%, the United States is accompanying chart illustrates the results. We would focus ourfifth from the bottom of our ranking, ahead of Denmark, Mexico, search on those countries in the upper-right corner of the figureIndia and South Korea. (see Figure 6). Again, these are the countries that are currently offering both a high yield and are potentially undervalued.At the other extreme, 15 countries offer a yield of 4% or greater,including a number of developed markets. Even after eliminating Using this methodology, in the developed world the list of highcountries at the heart of the euro crisis like Spain and Italy, there yielding, liquid (not all of the countries listed are easily accessible)are still a number of options in both Europe and Asia: Finland, and potentially undervalued countries includes Finland, Norway,Norway, New Zealand, Australia and Singapore. In addition, several New Zealand, Hong Kong, the Netherlands, Germany andemerging markets offer yields well in excess of 4%. Excluding some Singapore. In the emerging market universe, we would focus theof the more speculative Eastern European names, such as the search for high yielders on Taiwan, Brazil, Russia and South Africa.Czech Republic, investors are still left with a number of Asian and For investors looking for both yield and value, we wouldLatin American options, such as Taiwan and Brazil. concentrate on this list.Moving beyond yield, several of these countries also offer Other Opportunities For Yieldcompelling value for longer-term investors. In particular, many ofthe countries offering the highest yields are also potentially trading Allocating by country generally offers a broad, well-diversified waybelow their fair value. In attempting to isolate the relative valuation to access markets. Granted, some of the countries—particularly inof a country, we rely on our proprietary country model. This emerging markets—can be fairly narrow in terms of their sectorapproach compares the macro fundamentals for a particular and security concentration, but in general investors are investing incountry—growth prospects, profitability, risk, etc.—to current a fairly diversified collection of securities. This becomes more of avaluations. If a country’s valuation appears too low relative to its challenge when employing more niche assets, like sector funds,fundamentals, we would look to overweight that country. If, on the which by nature tend to be more concentrated and lessother hand, it appears that too much good news is discounted in well-diversified.the price relative to our economic expectations, we would look tounderweight that asset. The assumption is that the former group That said, while we generally prefer to allocate our equity exposurewill outperform over the intermediate term while countries for by country or region, for yield-oriented investors willing to acceptwhich valuation has outstripped macro fundamentals will more idiosyncratic risk there are a few sectors to consider. The onegenerally trail the broader market. sector we would emphasize is global energy. It is worth reiterating the case for each asset. The case for a modest alocation to global energy is based on Figure 6: Yield vs. Country Ranking valuation and natural inflation hedge. Energy stocks have trailed year-to-date, and as a result valuations are now very compelling. On a global basis, energy stocks are trading for less than 9x 7% Czech Republic earnings and roughly 1.3x book value, both low compared to other Finland sectors and to the sector’s own history. 14 In addition, energy stocks 6% Spain Norway historically have been particularly resilient to rising inflation. While PolandDividend Yield Australia New Zealand our near-term outlook suggests a very small probability of any 5% Italy Taiwan Brazil Morocco meaningful acceleration in inflation, a combination of France United Kingdom Singapore Sweden unconventional monetary policy and excessive debt burdens 4% Colombia Germany South Africa Russia makes this a longer-term risk. If investors can hedge that exposure Hungary Malaysia China 3% Belgium Peru Canada Netherlands Hong Kong Israel cheaply, and at the same time generate a yield in excess of most, if Thailand Austria Indonesia Philippines Chile Turkey Egypt not all, of the Treasury curve, we think this represents an Switzerland 2% United States Japan interesting opportunity. Denmark Mexico India 1% South Korea Country Rank (shaded area represents potentially undervalued countries offering high yield) Source: Bloomberg 6/30/12. 14 Source: iShares Model Portfolio Solutions group 7/15/12.
iSHARES MARKET PERSPECTIVES Our relatively positive view on energy is balanced by a more compared to ordinary income. Looking ahead to 2013, not only iscautious outlook on preferred stocks and REITs, two niche plays there a lack of clarity on the tax rate for dividend income, there isthat investors have been turning to for yield. On the former, while a lack of clarity regarding the future rate for ordinary income aswe see some opportunities for longer-term investors, we remain well as for capital gains. It is also unclear whether the dividendneutral on the asset class given the accompanying volatility. A tax rate will rise in isolation or along with a broader set of taxbroad index of preferred stock is currently yielding roughly 6%,15 in hikes. Given the uncertainty surrounding the tax code, coupledline with what is available in a typical high yield fund. However, the with the fact that there is no historical precedent for a major6% yield on preferreds comes with a fair amount of volatility, as unilateral hike in the dividend tax rate—in the sense thatmost preferred indices are heavily weighted toward financial dividend taxes rise but other rates remain constant—it isissues, currently the most volatile sector. As the volatility of the difficult, if not impossible, to handicap the impact of tax changesfinancial sector has risen, so has the volatility of preferred indices. on the preference for dividend stocks.Therefore, preferred stocks provide a yield similar to high yield, butthey do so with more volatility (in addition to being lower in thecapital structure). For that reason, we have not generally liked large “Common sense suggests that aallocations, as we believe a similar income can be obtained withless volatility in other asset classes. higher marginal rate on dividendWe also maintain a cautious stance on REITs. A broad REIT index is income compared to capital gainscurrently yielding roughly 3%, in line with energy stocks. 16 However,while energy looks cheap, REIT valuations appear closer to fair would hurt dividend-paying stocks,value, if not expensive. Investors have bid up the group in a search at least in a relative sense. But byfor yield, putting REIT valuations close to a four-year high. The S&P500 large cap REIT index is trading for approximately 3x book value, how much is difficult to quantify.”representing a near 40% premium to the broader market and a200% premium to other financial companies. On both a relativeand absolute basis, valuation appears at the extreme of its Our suspicion is that should the dividend tax go up as part of ahistorical range. REITs appear to offer little value at current levels. broader series of tax hikes—the fiscal cliff—dividend stocks may hold up surprisingly well, despite the higher tax rate. That isWhat if Taxes Rise? because a massive tax hike is likely to push the United States back toward a recession, which is currently not priced intoThe current monetary regime and the overwhelming likelihood that financial markets. Under this scenario, a higher tax on dividendsit remains in place for the foreseeable future dictate that investors is likely to be a lesser problem compared with a potential collapseare likely to continue to seek sources of equity income. However, in aggregate demand and corporate earnings. In the event ofthat focus may be somewhat impacted by potential changes to US another recession, investors may still flock to dividend stocks,tax policy. In the event that taxes on dividends—currently the rate particularly the low beta variety, as a safe haven, regardless of theis 15% for “qualified dividends”17 —rise, what should investors tax rate. If, on the other hand, the dividend tax rises but marginalexpect? Unfortunately, on this score history is a poor guide due to rates remain the same, there is no historical precedent withthe unprecedented nature of the current situation. which to estimate how dividend stocks might do on a relative basis. Common sense suggests that a higher marginal rate onPrior to 2003, dividends were generally taxed as income at the dividend income compared to capital gains would hurt dividend-prevailing rate, minus some modest exemptions (see Figure 7). paying stocks, at least in a relative sense. But by how much isSince 2003, dividends have been taxed at a preferential rate difficult to quantify.15 Source: Bloomberg 6/30/12 as represented by the S&P US Preferred Stock Index.16 Source: Bloomberg 6/30/12 as represented by the S&P 500 REIT Index.17 A type of dividend that meets certain criteria that allows it to be taxed at a preferential rate.
iSHARES MARKET PERSPECTIVES Figure 7: Dividend Taxation Conclusion The search for yield is an understandable response to a prolonged Year Top Tax Rate Year Top Tax Rate period of unusual monetary conditions. There is simply no modern precedent for an environment in which short-term rates are held at 1913 Exempt 1962 $50 Exempt zero for a prolonged period of time. In addition, the Fed’s dedication 1914 Exempt 1963 $50 Exempt to its asset purchase programs, which have also pushed long-term 1915 Exempt 1964 $100 Exempt rates to record lows, further complicates the situation. 1916 Exempt 1965 $100 Exempt 1917 Exempt 1966 $100 Exempt Given our expectations that growth in the developed world remains 1918 Exempt 1967 $100 Exempt below trend, we believe that the low-rate environment is likely to 1919 Exempt 1968 $100 Exempt 1920 Exempt 1969 $100 Exempt last for the next several years. Financial theory would argue that 1921 Exempt 1970 $100 Exempt investors should focus on total return, rather than exclusively on 1922 Exempt 1971 $100 Exempt income. However, the reality is that many investors will 1923 Exempt 1972 $100 Exempt understandably look for alternative sources of income to replace 1924 Exempt 1973 $100 Exempt the more traditional sources—cash and bonds—that now provide 1925 Exempt 1974 $100 Exempt little or no yield. 1926 Exempt 1975 $100 Exempt 1927 Exempt 1976 $100 Exempt In this environment, we do believe that investors should consider 1928 Exempt 1977 $100 Exempt 1929 Exempt 1978 $100 Exempt equities to supplement their income needs. However, the danger is 1930 Exempt 1979 $100 Exempt in overpaying for an income stream. We see evidence of this in a 1931 Exempt 1980 $100 Exempt number of places such as utilities and, to a lesser extent, REITs. 1932 Exempt 1981 $200 -$400 Exempt (1) On the other hand, there are pockets of value that offer attractive 1933 Exempt 1982 $200 -$400 Exempt (1) yields and the potential for capital appreciation. In particular, we 1934 Exempt 1983 (1) would advocate looking at equities in Northern Europe, developed 1935 Exempt 1984 (1) Asia, select emerging markets (Brazil, Taiwan and South Africa), as 1936 Fully Taxable 1985 Fully Taxable (1) well as energy stocks. 1937 Fully Taxable 1986 Fully Taxable (1) 1938 Fully Taxable 1987 Fully Taxable 1939 Fully Taxable 1988 Fully Taxable While we favor a dividend tilt, both as a carry play and because 1940 Exempt 1989 Fully Taxable dividend stocks generally tend to be less volatile than the broader 1941 Exempt 1990 Fully Taxable market, we are cognizant this strategy may be hurt should tax 1942 Exempt 1991 Fully Taxable rates rise in 2013. However, unless the dividend tax rate rises 1943 Exempt 1992 Fully Taxable unilaterally, the risks may be overstated. While politicians are likely 1944 Exempt 1993 Fully Taxable to wait until the last possible minute, odds still favor a last-minute 1945 Exempt 1994 Fully Taxable reprieve of the scheduled tax hikes. If, on the other hand, politicians 1946 Exempt 1995 Fully Taxable 1947 Exempt 1996 Fully Taxable stumble and all the Bush era tax cuts expire, the tax rate on 1948 Exempt 1997 Fully Taxable dividends is likely to be a small part of the problem. Under this 1949 Exempt 1998 Fully Taxable scenario, massive fiscal drag may push the United States and large 1950 Exempt 1999 Fully Taxable parts of the global economy back into recession. Should this occur, 1951 Exempt 2000 Fully Taxable a higher tax rate may be an acceptable price for the income and 1952 Exempt 2001 Fully Taxable safety of a dividend tilt. 1953 Exempt 2002 Fully Taxable 1954 $50 Exempt 2003 15% 1955 $50 Exempt 2004 15% 1956 $50 Exempt 2005 15% 1957 $50 Exempt 2006 15% 1958 $50 Exempt 2007 15% 1959 $50 Exempt 2008 15% 1960 $50 Exempt 2009 15% 1961 $50 Exempt 2010 15% 2011 39.60%Note (1): $750 to $1500 exepmt if reinvested in utilitiesSource: Tax Foundation (they sourced Treasury Dept. and Commerce Clearing House).Accessed on seekingalpha.com 7/19/12.