Dividend-Paying Stocks Have Cloudy Future

A sizable tax break on corporate dividends has some analysts gushing about the virtues of dividend-paying stocks, but it's worth noting that since President Bush unveiled his original tax plan back in early January, these stocks have seriously underperformed.

Now it's true that a dividend tax break was never a certainty over the past few months. Many investors didn't expect a total elimination of dividend taxes as the president had initially proposed, and some thought the plan would be vastly watered down, if it came at all. Still, the dramatic underperformance of dividend-paying stocks so far this year seems to suggest that dividend tax cuts may be less important to investors than some analysts think.

Stocks that paid a dividend have posted a total return of just 6.23% since the start of the year, compared with an almost 21% climb for non-dividend-paying stocks, according to Howard Silverblatt, a quantitative strategist at Standard & Poor's. The average S&P 500 stock posted a total return of 10.5% during that time. ...