NEW YORK, NY--(Marketwire - Dec 7, 2012) - Real Estate Investment Trusts (REITs) by law are required to pay out a minimum of 90 percent of their taxable income through dividends. A dividend tax increase has been a major concern for investors as current top tax rate is set to expire in the New Year. Five Star Equities examines the outlook for dividend yielding companies and provides equity research on Chimera Investment Corp. (NYSE: CIM) and Hatteras Financial Corp. (NYSE: HTS).
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The current top tax rate on dividends, which was set in the Bush-era, will expire in January. If lawmakers fail to take action dividends will be taxed at the same level as wages and salaries in 2013. President Obama's plan would see the top tax rate on dividends rise to from 15 percent to 39.6 percent for high-income earners, which doesn't include the new 3.8 percent tax on investment income added by Obama's health-care law. Since mREITs are already taxed as ordinary income they are likely to see just a slight increase in taxation, compared to almost triple for other high yielding companies.
"The prevailing fear is that if taxes for dividends increase, dividend yielding companies could grow less attractive and could see a multiple de-rating," said Savita Subramanian, a strategist at Bank of America Merrill Lynch.
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Chimera Investment Corporation invests in residential mortgage loans, real estate-related securities and various other asset classes. The company offers investors an annual dividend of $0.36 per share for a yield of approximately 13.2 percent. Shares of Chimera have gained 2.5 percent over the past year.
Hatteras is a real estate investment trust formed in 2007 to invest in single-family residential mortgage pass-through securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. The company offers investors an annual dividend of $3.20 per share for a dividend yield of approximately 12.0 percent. Shares of Hatteras are up 2.5 percent year-to-date.
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