VGLT - Qualified Dividend Income: Edging Out Bond Interest When It Comes To Taxes

2025-03-18 12:00:00 ET

Summary

• Relative to bond interest, QDI tips the tax advantage in favor of dividend-paying equities and preferred stocks (preferreds) because it subjects eligible dividend income to preferential capital gains tax rates.
• Dividend-paying equities offer upside potential from capital appreciation and dividend growth, whereas bonds typically pay fixed coupons and return their par value at maturity.
• Preferred stocks blend characteristics of both, offering stable distributions along with modest upside potential.
• Preferreds might often achieve a similar return profile to high-yield bonds, but the distributions they are able to pay are eligible for treatment as QDI.
• Consequently, preferreds may generate better after-tax results, making them a tax-efficient high-yield alternative.

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