President Obama recently submitted his 2013 budget proposal, containing a host of tax increases, including those for dividends. Given that dividends are already taxed at the corporate level – of which anyone receiving those dividends is already a pro-rata corporate owner – the ‘double taxation’ on those profits is philosophically troubling. This double taxation though has been the case for many years and many a Presidential administration, albeit in varying degrees, and is likely to remain… The proposal itself however, and previous coverage about its potential, may have contributed to the relatively slow start for dividend payers in 2012. Much debate – and an election – in 2012 will go a long way in determining if the proposals are even enacted, but we believe the ‘tax discussion’ will mean more in short term perception, than long term reality. After very strong relative performance for dividend stocks in 2011 the ‘taxation’ excuse may be used often this year as a reason to avoid dividend focused strategies. We acknowledge this perception could have an influence – but we would view any under-performance as a chance for investors to get involved in quality, dividend growing stocks, as the ultimate reality likely will differ from the perception that drives short term prices. Below is a chart updated in 2010 outlining the last four decades of dividend tax regimes. As is evident, even in periods of extremely oppressive policy, dividend paying stocks have maintained a performance advantage versus non-payers. We believe this is likely to continue when evaluated over a full market cycle.