On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero.
This is one reason I think PCL is a great stock to own in a taxable account. Due to a quirk in the tax code, PCL’s income, which stems from cutting timber, is considered a capital gain for tax purposes. Hence, PCL’s quarterly dividend is taxed to shareholders at the LT capital-gains rate rather than the dividend rate. In 2011, this distinction will be highly consequential for investors in the top tax brackets.
Although the above is a distinguishing feature of PCL, it’s not the main reason I like the stock. The primary impetus for owning the stock is that I estimate the fair value of PCL’s timberlands to be $53/sh (#msg-43004163), which exceeds the current share price by more than 50%! In short, PCL is a rock-solid asset play (“wood-solid” might be a more apt description) that offers a 5% tax-advantaged dividend yield. What’s not to like about a stock like that?
“The efficient-market hypothesis may be the foremost piece of B.S. ever promulgated in any area of human knowledge!”
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) that offers a 5% tax-advantaged dividend yield. What’s not to like about a stock like that?
