10 Things Every Dividend Investor Should Know

3. Tax Benefits of Dividends:

Dividend stocks can provide certain tax benefits to investors, depending on the type of dividend and the investor’s tax situation. Qualified dividends, which are dividends paid by U.S. corporations and certain foreign corporations that meet certain criteria, are taxed at a lower rate than ordinary income. In contrast, non-qualified dividends, which are dividends that do not meet the criteria for qualified dividends, are taxed at the same rate as ordinary income. This means that non-qualified dividends are subject to higher tax rates, which can reduce the after-tax return for investors.

Additionally, dividend-paying stocks can provide certain tax benefits for retirement accounts such as individual retirement accounts (IRAs) and 401(k) plans.