Beat the Dividend Tax with Briggs & Stratton (NYSE: BGG)

Beat the Dividend Tax with Briggs & Stratton (NYSE: BGG)

Beat the Dividend Tax with Briggs & Stratton (NYSE: BGG)

Many companies are reviewing their dividend policies since investors may be forced to pay higher taxes in the near future. Since 2003 the tax on dividends has been low with investors paying a maximum of 15% on dividend income. But that exceptionally low rate is set to expire come the New Year unless congress and the President reach a compromise on taxes and government spending. As it stands right now dividends will be taxed as ordinary income in 2013, effectively the same as one’s paycheck. For the folks who are fortunate enough to be in the top bracket of 35%, they will see their dividend tax jump to a whopping 43.4%.

If the dividend tax structure expires at the start of 2013, which is very likely, folks will not be paying the almost decade long 15%. Instead investors from all classes and levels will be asked to pay personal income tax at ordinary rates. There are currently six tax rates that range from 10% to 35% that have been in place since 2003. The top ordinary rate of 35% is expected to increase to 39.6%. Moreover, there is a new 3.8% tax that is being used to pay for the health care reform bill. This will ultimately bring the tax rate for the top bracket to a grand total of 43.4%.

Briggs & Stratton’s (NYSE: BGG) board recently approved the pulling forward of its 12-cent quarterly cash dividend into 2012, protecting the company’s shareholders from potential tax increases next year. The company said that the dividend, which was previously approved on Oct. 17, would be paid on Dec. 31 instead of Jan. 2. The record date remains Dec. 14. Briggs & Stratton is the latest company to move up its quarterly payout or issue a special end-of-year payment, in order to protect investors from potentially having to pay higher taxes on dividend income starting in January.

The company has a market cap of $980m and is currently trading at $20.62 a share. The stock is sitting just below its 52-week high of $20.86 and offers a dividend yield of 2.30%. The company was founded in 1908 and manufactures air-cooled gasoline engines for outdoor power equipment around the world. Its main operations consist of two segments, engines and power products. The largest institutional holder of the Milwaukee-based engine maker is currently Blackrock.

Some of its smaller competitors such as Johnson Outdoors (NASDAQ: JOUT) with a market cap of $197mm, Douglas Dynamics (NASDAQ: PLOW) with a market cap of $300mm, and Altra Holdings (NASDAQ: AIMC) with a market cap $577mm, all are expected to outperform in 2013. Much of the sector will enjoy an increase in outdoor furniture sales due to the extreme weather events that have occurred around the world. Hurricane Sandy alone caused a tremendous amount of damage to outdoor furniture and many folks will be looking replace their items come the spring. With the consumer alive and well and customers continuing to spend this segment in the market is expected to exceed analyst expectations.

BGG recently closed its $57 million cash acquisition in stock of Companhia Caetano Branco. Branco, founded in 1936, makes outdoor power equipment used primarily in light commercial applications in Brazil and employs about 150 workers there. Briggs said it financed the transaction from cash on hand, and that they do not expect it to have a significant impact on sales or earnings in fiscal 2013.

The company is expanding and has shown consistent growth for the last couple of years. When looking at the chart for the last 12-months there is a clear uptrend in place that is expected to continue into 2013. If the stock falls anywhere around $20 it is considered buying opportunity, with BGG expected to have another solid year.

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    On the radio they were describing how more outdoor furniture was destroyed as a result of sandy. Come the spring we can see new orders rise sharply.

  • Chizy

    Come 2013, I believe it is going to be a case of “The winner takes it all” for most of the companies, especially when it comes to lowered prices and durability of items. Let’s watch the drama unfold.