I'm worried about a fiscal contraction more than a hike on dividends. I think Luskin is almost certainly exaggerating for the following reasons.
First, the dividend discount model is mostly theoretical. I have listened to and read literally thousands of Wall Street reports and dividends as a valuation tool is minimal if nonexistent, unless they are stocks purchased primarily for dividends, ie utilities. Other valuation tools are far more important, such as multiples of earnings, cash flow, sales and even book value.
Second, half of all shares in America are held in tax free accounts. A tax increase won't matter to them.
Third, cash is distributed to shareholders mainly through stock buybacks. If taxes on dividends become too high, corporations will decrease dividend payments and increase stock buybacks.
There have been two other times when dividend tax rates have been raised, 1936 and 1954. Stocks continued to rise for the next 1-2 years before falling due to a general recession. In the 90s, when dividend taxes rose with general income taxes, stocks continued to rise.
Fifth, the dividend payout ratio for companies is at 30%, an all time low.
Sixth, cash on corporate balance sheets is at $2 trillion, an all time high also. Over $1 trillion is in the US. Both this and the prior point can support stocks.
Seventh, Treasury Yields are extremely low, and 40% of all large stocks pay a dividend yield above the T bond yield. It's unlikely stocks will be sold en masse to buy Treasuries.
I do think there is a risk of one more big leg down. And sclerosis in DC may be the catalyst. But, even though it would be a negative for stocks, it is highly unlikely to be caused by a hike in dividend tax rated.
