Okay -- so let's examine the STOCK MARKET and DIVIDENDS if they change the tax rate -- now that you've digested the BONDS vs STOCKs and taxable / non taxable return quality.
DIVIDENDS are paid as a dollar amount... i.e., they are declared in an AMOUNT not a PERCENTAGE. SO..... as the stock FALLS in price -- the PERCENTAGE of the dividend return INCREASES.
Now -- if I have to make a 7.69% taxable dividend --- to equal a 5% tax free bond -- what has to happen to get there?? STOCK PRICES HAVE TO FALL...
The oldest saying on Wall Street --- "as interest rates RISE - stock prices DIE"
Ignore the relationship at your own peril.
|