NCPA - National Center for Policy Analysis

An Overlooked Benefit of Dividend Tax Relief

January 22, 2003

The more a company pays in dividends, the less likely are corporate executives to dump their stock, according to finance experts Craig Columbus and Carr Bettis. The finding suggests that if President Bush's attempt to kill the dividend tax becomes law, insiders who routinely cash out their company's stock would be encouraged to hold on to it.

  • The researchers discovered that among S&P 500 companies, the bigger the dividends have been over the past five years, the less insiders have sold.
  • For example, insiders in 150 non-dividend companies sold roughly $8.5 million in stock during an average quarter over the last five years.
  • Among 64 companies with a dividend yield between 2 percent and 2.99 percent, the quarterly average of stocks sold by insiders was just over $2 million.
  • While insiders at 47 companies having a yield of 4 percent or better sold only $763,041 worth of stock quarterly.

In effect, dividends could turn executives into long-term shareholders with less incentive to use short-term accounting tricks just to move the stock price, Columbus says.

Source: Matt Krantz, "Analysis: Insiders Dump Less Stock When Dividends Are Paid," USA Today, January 22, 2003.

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