20 Worst States for Dividend Income Investors

Published on January 16, 2024 at 1:54 pm by Maleha Afzal in Business, Economy, Lists, News

In this article, we will take a look at the 20 worst states for dividend income investors. If you want to skip our detailed analysis, you can go directly to 5 Worst States for Dividend Income Investors.

Why Should Investors Consider Dividend Aristocrats?

On December 30, 2023, Dave Mazza, Chief Strategy Officer at Roundhill Investments, appeared in an interview on Yahoo Finance, where he discussed the possible investment opportunities in 2024. Mazza said 2023 has been significant for the “Magnificent 7” stocks which include Meta Platforms Inc. (NASDAQ:META), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL), among others. While artificial intelligence has led the year as a primary catalyst, Mazza reckons 2024 to be divided for the big tech group. He highlighted that the bifurcation of the market may simply depend on rate cuts, when and if they are fully enforced.

Mazza said that the market has been performing well and has been out of the earning recessions rut, which again is a good sign for the money market. Moreover, he added that slowing inflation rates and increasing earnings on the horizon is a testament to the expansion of earnings in the stock market. However, while 2024 holds a positive outlook, the primary concern for investors will be consumers. Rising credit card spending and consumer stress are common factors, which may be significant later in the year, or act as a game changer for the market.

Mazza thinks dividend aristocrats, or companies that have been consistent with their dividend growth for 20 to 25 years, will be the best place to for investors to position themselves. He further added that dividend kings and dividend monarchs will be significant to investors, especially early in 2024. He said that these companies tend to be extremely resilient against market forces and happen to report consistent and strong free cash flow. Mazza noted that the upcoming elections and the pressure on the Fed shape his less favorable view of the market for the second half of 2024. Therefore, until consumer behavior is unclear, it might be safer to stick to elite dividend payers.

Elite Dividend Payers in the Market

The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Johnson & Johnson (NYSE:JNJ) are some of the most notable companies known for their continuous dividend growth rates. Let’s discuss some recent updates from these companies. You can also take a look at the tax-friendly states for high income in the United States.

The Coca-Cola Company (NYSE:KO) is not only a favorite pick of dividend income investors, but it is also known for spearheading sustainability initiatives. On October 25, 2023, The Coca-Cola Company (NYSE:KO) announced that all 500-mL sparkling beverages in Canada will be made with 100% recycled plastic. The initiative suggests that no sparkling 500-mL water bottle will be made from virgin plastic starting in 2024. The initiative is a huge step forward for the company’s sustainability plans. The Coca-Cola Company (NYSE:KO) has implemented a cyclical system in place, which spreads across the recycling, cleaning, and sorting of plastic until it is transformed into flakes to produce new bottles. To support the initiative, The Coca-Cola Company (NYSE:KO) also launched an advertising campaign called “Recycle Me Again.”

The Procter & Gamble Company (NYSE:PG) is another top stock pick among dividend investors, as of January 16 the stock is offering a forward dividend yield of 2.50%. The Procter & Gamble Company (NYSE:PG) was a part of 75 hedge fund portfolios at the close of the third quarter of 2023. The total stakes of these hedge funds amounted to $5.73 billion, up from $5.35 billion in the previous quarter with 74 positions. The hedge fund sentiment for the stock is positive. As of December 31, 2023, Ayrshire Capital Management is the largest shareholder in The Procter & Gamble Company (NYSE:PG) and has a position worth $4.22 million. The stock covers 2.43% of the fund’s portfolio.

Johnson & Johnson (NYSE:JNJ) is not only a dividend aristocrat, but it is also a dividend king. As of January 16, the stock has a forward dividend yield of 2.93%. The company’s commitment to expand is a testament to its popularity in the industry. On January 8, Johnson & Johnson (NYSE:JNJ) signed an agreement to acquire Ambrx Biopharma Inc. (NASDAQ:AMAM) for a staggering $2.0 billion. The clinical-stage biopharmaceutical company is focused on designing next-generation antibody-drug conjugates (ADC). Such will enhance the efficacy across multiple cancer indications such as the ARX517, ARX788, and ARX305. The acquisition will allow Johnson & Johnson (NYSE:JNJ) to leverage Ambrx’s (NASDAQ:AMAM) ADC technology to eliminate cancer cells using monoclonal antibodies linked to a potent chemotherapeutic payload.

Wall Street is positive on Johnson & Johnson (NYSE:JNJ). On January 9, Cantor Fitzgerald analyst Louise Chen reiterated an Overweight rating on Johnson & Johnson (NYSE:JNJ) and maintained her price target of $215. Over the past 3 months, 7 Wall Street analysts have held a buy opinion on the stock. Johnson & Johnson (NYSE:JNJ) has an average price target of $178.08 and a high forecast of $215.

Now that we have discussed some notable dividend stocks, let’s take a look at the 20 worst states for dividend income investors. You can also read the states with income tax rates in 2024.

20 Worst States for Dividend Income Investors

Our Methodology

For our title, 20 worst states for dividend income investors, we decided to base our list on the income tax rate for each state. Our hypothesis behind this was that states with a higher individual income tax would put a dividend income investor at a disadvantage. We sourced our data from the Tax Foundation. It is to be noted that we accounted for any adjustments to be made to tax rates starting in 2024. This information was also sourced from the Tax Foundation. We then sifted through government websites for every state to verify our information and source any relevant data for our list. The list of the 20 worst states for dividend income investors is in ascending order of the higher-end individual income tax rate.

By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a consensus approach, we identify the best stock picks of more than 900 hedge funds investing in US stocks. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). Whether you are a beginner investor or a professional one looking for the best stocks to buy, you can benefit from the wisdom of hedge funds and corporate insiders.

20 Worst States for Dividend Income Investors

20. Maryland

Income Tax Rate (2024): 5.75%

Maryland ranks among the worst states for dividend income investors. The individual income tax rate ranges from 2% to 5.75%. The state also has certain jurisdictions that levy local income taxes.

19. Idaho

Income Tax Rate (2024): 5.80%

The individual income tax rate in Idaho is a flat 5.8% for all types of taxable income. The minimum income bar before taxes are levied varies for single individuals, married couples, and the head of a household.

18. Nebraska

Income Tax Rate (2024): 5.84%

The individual income tax rate in Nebraska ranges from 2.46% to 6.64%, contributing to its ranking as one of the worst states for dividend income investors.

17. Montana

Income Tax Rate (2024): 5.90%

Montana ranks seventeenth among the worst states for dividend income investors. The individual income tax rate ranges from 1% to 6.75%.

16. New Mexico

Income Tax Rate (2024): 5.90%

Individual income tax rates in New Mexico range from 1.7% to 5.9%. The state also has a dividend withholding tax applying to dividends paid by companies to investors, resident and non-resident alike, at 10%.

15. Rhode Island

Income Tax Rate (2024): 5.99%

Rhode Island ranks among the worst states for dividend income investors. The individual income tax rate ranges from 3.75% for income above $0 to 5.99% for income above $155,050.

14. South Carolina

Income Tax Rate (2024): 6.40%

South Carolina ranks fourteenth among the worst states for dividend income investors. The individual income tax rate ranges from 0% to 6.5%.

13. West Virginia

Income Tax Rate (2024): 6.50%

The individual income tax rate in West Virginia ranges from 3% to 6.5%. Dividend and interest income in the state falls under non-business income unless a person is engaged in the business of making investments.

12. Delaware

Income Tax Rate (2024): 6.60%

Delaware ranks among the worst states for dividend income investors. The individual income tax rate in Delaware ranges from 2.2% to 6.6%.

11. Connecticut

Income Tax Rate (2024): 6.99%

The individual income tax rate in Connecticut ranges from 3% to 6.99% contributing to its ranking as one of the worst states for dividend income investors. The state also levies a 7.5% corporate income tax rate. Dividends and interest income are taxed based on the state’s adjusted gross income. The rate varies from 1% to 14%.

10. Maine

Income Tax Rate (2024): 7.15%

With a higher-end individual income tax rate of 7.15%, Maine ranks among the worst states for dividend-income investors. The individual income tax rate ranges from 5.80% to 7.15% and is levied on all kinds of income including wages, investment income, interest income, pension, and dividends.

9. Wisconsin

Income Tax Rate (2024): 7.65%

Wisconsin ranks ninth among the worst states for dividend income investors. The individual income tax rate in Wisconsin ranges from 3.54% to 7.65% across four income brackets.

8. Vermont

Income Tax Rate (2024): 8.75%

The individual income tax rate in Vermont ranges from 3.35% to 8.75% contributing to its rank as one of the worst states for dividend income investors.

7. Massachusetts

Income Tax Rate (2024): 9.00%

The individual income tax rate in Massachusetts ranges from 5% to 9%. The state charges tax on earned and unearned income which includes wages, salaries, commissions, interest dividends, and capital gains income.

6. Minnesota

Income Tax Rate (2024): 9.85%

Minnesota ranks among the worst states for dividend income investors with a higher-end individual income tax rate range of 9.85%. The tax rate ranges from 5.35% for income above $0 to 9.85% for income above $321,450 for a married couple filing taxes together, $256,880 for the head of the household, and $193,240 for a single person.

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