T. Rowe Price’s Tom Huber, whose Dividend Growth fund is in the top 13% of funds in its category over the past five years, according to Morningstar, says that tax increases associated with the fiscal cliff aren’t reason to avoid dividend-paying stocks.
“There is a lot of discussion and worry [about the tax hikes] more than I think it deserves,” Huber tells Barrons.com. “Higher tax rates are not good. But I think [these stocks] have been shown to work over time.”
While consumer staples, utilities, financials, and telecom have traditionally been areas to find strong dividend plays, Huber says that’s changing, with consumer discretionary and tech firms now joining the dividend players. “Utilities and telecom stocks have higher yields, though the payout ratios are higher and dividend growth is slower,” he says. “But because technology stocks are new to the dividend-paying world, the payout ratios tend to be lower, which leaves lots of room to raise payments.”
Huber also talks about his dividend strategy. He says he generally wants his portfolio to have a market-level dividend yield, but he focuses on firms that he thinks can grow their dividend payouts faster than their broader sectors. He talks about some of his current favorite picks, including Automatic Data Processing and Pfizer.