7 Stocks That Could Benefit From a Capital Gains Tax Hike in 2021

Posted on Friday, May 14th, 2021 by MarketBeat Stiaff
7 Stocks That Could Benefit From a Capital Gains Tax HikeOne thing every investor needs to learn is the effect of capital gains on their investments. Every time an investor sells a stock that has appreciated in value, that capital gain is subject to being taxed. Stocks that are held for less than a year pay a short-term capital gains tax rate. Stocks that are held for over a year pay a long-term capital gains tax rate.

In general, a capital gains tax hike is a bearish indicator for stocks. However, there are a couple of strategies that can help investors avoid some of the tax hit. One strategy is to keep your investments in an individual retirement account (IRA) or 401(k). However many higher-income earners want to have more access to the funds in their brokerage accounts.

A sound strategy for these investors involves buying dividend stocks. Dividend income is also taxed (unless it is reinvested), but typically when the capital gains tax rate is raised, the dividend income rate stays the same. This makes dividend stocks more attractive.

Investing in dividend stocks is never a bad idea, but at times when the capital gains tax rate is favorable, growth stocks provide a better reward for investor capital. But when long-term capital gains tax rates go up, those gains can get expensive.

In this special presentation, we’ll give you seven stocks that have a nice dividend yield and a strong story to go along with them.

#1 - AT&T (NYSE:T)

AT&T logo

AT&T (NYSE:T) is a stock that many investors love to hate. And when the choice is between T stock and some growth stocks, AT&T has its downside. But as a dividend stock, there are few companies that reward investors quite like AT&T.

To begin with, the company is a Dividend Aristocrat, having increased its dividend payout for the last 37 consecutive years. Over the last three years, the company has increased its dividend by an average of 6.12%. And, AT&T currently pays one of the highest dividend yields at 6.47%. Dividend yield is not always a true indicator of the strength or quality of a dividend. However when combined with other factors such as dividend aristocrat status it is in indicator that a company prioritizes shareholder value.

In 2020, AT&T did not increase its dividend leaving some to wonder if the company’s dividend aristocrat status is in jeopardy. It seems unlikely. The dividend is well covered by earnings and the company, to its credit, used the savings from not increasing the dividend to get its balance sheet in better shape.

About AT&T
AT&T Inc provides telecommunication, media, and technology services worldwide. The company operates through Communications, WarnerMedia, and Latin America segments. The Communications segment offers wireless voice and data communications services; video and targeted advertising services; broadband, including fiber, and legacy telephony internet and voice communication; and wireline telecom services. Read More 

Current Price: $28.78
Consensus Rating: Hold
Ratings Breakdown: 8 Buy Ratings, 5 Hold Ratings, 2 Sell Ratings.
Consensus Price Target: $31.73 (10.3% Upside)

#2 - Coca-Cola (NYSE:KO)

The Coca-Cola logo

Coca-Cola (NYSE:KO) is another stock that is drawing a lot of headlines for better or worse depending on your political leanings. However this is one of those times when you have to check your emotion at the door and consider the opportunity.

First of all, despite the absence of live events and businesses being closed, Coca-Cola posted revenue that was “only” 9% lower in 2020 than in 2019. That has to be encouraging as the economy reopens. Case in point, first quarter revenue was up approximately 5% from the prior year’s first quarter. And that’s with much of the country being under some form of mitigation.

Next Coke holds the status of a Dividend King. This means it has increased its dividend payout for at least 50 consecutive years (it’s 59 years for KO stock). And despite the pandemic the company managed to increase its dividend in 2020 and has done so again in 2021. Its three-year average rate of growth sits at over 10%.

About The Coca-Cola
The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks; water, enhanced water, and sports drinks; juice, dairy, and plantÂ-based beverages; tea and coffee; and energy drinks. It also offers beverage concentrates and syrups, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores. Read More 

Current Price: $54.56
Consensus Rating: Buy
Ratings Breakdown: 9 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $59.00 (8.1% Upside)

#3 - AbbVie (NYSE:ABBV)

AbbVie logo

AbbVie (NYSE:ABBV) is a stock that got bypassed as investors spread their investment dollars to companies that had a stake in the Covid-19 vaccine and/or therapeutic race. But now that the dust has settled, it’s time to reconsider this dividend darling.

ABBV stock is closing in on Dividend King status. It has raised its dividend for 49 consecutive years. Considering its last increase was in Oct. 2020, it may join that elite club this year. And AbbVie has increased its dividend by an impressive 84.37% over the past three years.

Analysts have been, in my opinion, nit-picking at ABBV stock because the company will lose its exclusive U.S. rights to its massively popular arthritis drug, Humira, in 2023. That’s a logical concern but it loses sight of AbbVie’s robust pipeline and the fact that it has two immunology drugs, Skryizi and Rinvoq currently in market.

Those two drugs delivered over $2.2 billion in net revenue in 2020 and are forecast to reach $15 billion by 2025.

About AbbVie
AbbVie Inc discovers, develops, manufactures, and sells pharmaceuticals in the worldwide. The company offers HUMIRA, a therapy administered as an injection for autoimmune and intestinal Behçet's diseases; SKYRIZI to treat moderate to severe plaque psoriasis in adults; RINVOQ, a JAK inhibitor for the treatment of moderate to severe active rheumatoid arthritis in adult patients; IMBRUVICA to treat adult patients with chronic lymphocytic leukemia (CLL), small lymphocytic lymphoma (SLL), mantle cell lymphoma, waldenström's macroglobulinemia, marginal zone lymphoma, and chronic graft versus host disease; VENCLEXTA, a BCL-2 inhibitor used to treat adults with CLL or SLL; and MAVYRET to treat patients with chronic HCV genotype 1-6 infection. Read More 

Current Price: $114.70
Consensus Rating: Buy
Ratings Breakdown: 11 Buy Ratings, 1 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $120.33 (4.9% Upside)

#4 - Procter & Gamble (NYSE:PG)

The Procter & Gamble logo

Few stocks say “steady Eddie” as much as Procter & Gamble (NYSE:PG). It’s a defensive stock but over the last five years, investors have been rewarded with a stock price gain of over 63%. Despite that, PG stock is down slightly in 2021 (as of this writing), which makes it a solid buy-on-the-dip candidate. This is particularly true since the company last reported earnings in April and delivered year-over-year revenue growth of 5.2%.

It’s fair to wonder about the effect that rising commodity prices may have on the company’s business. But it’s likely that the company will be able to pass along a modest price increase without having it curtail revenue.

And since this presentation is all about dividend stocks, there are few finer than PG stock. The Dividend King has raised its dividend for 59 consecutive years and has raised its dividend on average by over 13% in the last three years.

About The Procter & Gamble
The Procter & Gamble Company provides branded consumer packaged goods to consumers in North and Latin America, Europe, the Asia Pacific, Greater China, India, the Middle East, and Africa. It operates in five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. Read More 

Current Price: $133.12
Consensus Rating: Buy
Ratings Breakdown: 7 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $149.64 (12.4% Upside)

#5 - Pfizer (NYSE:PFE)

Pfizer logo

Whether you have gotten the Covid-19 vaccine or not, there’s no denying that Pfizer (NYSE:PFE) was one of the hottest stocks of 2020. And with the likelihood of booster shots being required in the U.S., the possibility of vaccinating young children, as well as the increasing demand for vaccines throughout the world, 2021 should be another year that growth and income investors should benefit from PFE stock.

Pfizer stock is flat for 2021 and prior to the release of its vaccine, it was struggling to make up for its pandemic drop. Keep in mind that some of Pfizer’s business was affected by the pandemic. However, that should continue to mitigate in 2021 which should provide some added revenue to support the company’s dividend.

The company is not yet part of the Dividend Aristocrat club having only increased its dividend since 2010. However, Pfizer’s dividend payout ratio sits at 4.04% which is well above the S&P 500 average of 1.8%.

About Pfizer
Pfizer Inc discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas, including cardiovascular metabolic and pain under the Eliquis, Chantix/Champix, and Premarin family brands; biologics, small molecules, immunotherapies, and biosimilars under the Ibrance, Xtandi, Sutent, Inlyta, Retacrit, Lorbrena, and Braftovi brands; and sterile injectable and anti-infective medicines under the Sulperazon, Medrol, Zithromax, Vfend, and Panzyga brands. Read More 

Current Price: $39.61
Consensus Rating: Hold
Ratings Breakdown: 2 Buy Ratings, 11 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $40.43 (2.1% Upside)


International Business Machines logo

Is Big Blue making a comeback? It certainly looks like it. International Business Machines (NYSE:IBM) has been in a multi-year pivot to the cloud. And by the looks of the company’s first-quarter earnings, the transition is beginning to bear fruit. Revenue was up slightly on a year-over-year basis which is no small achievement coming out of the pandemic.

To be fair, IBM stock is still a far cry from its record high close of over $213 per share in 2013. And the stock is still about 25% below the $180 level it reached in 2017. But IBM is up 18% in 2021 making it a solid choice in the old-school technology space.

IBM has increased its dividend for the past 21 years and in the last three years that dividend increase has averaged 10.34%. The combination of increasing revenue and a solid dividend make IBM a strong choice in an inflationary environment with interest rates likely to stay low for the foreseeable future.

About International Business Machines
International Business Machines Corporation provides integrated solutions and services worldwide. Its Cloud & Cognitive Software segment offers software for vertical and domain-specific solutions in health, financial services, supply chain, and asset management, weather, and security software and services application areas; and customer information control system and storage, and analytics and integration software solutions to support client mission critical on-premise workloads in banking, airline, and retail industries. Read More 

Current Price: $146.36
Consensus Rating: Hold
Ratings Breakdown: 4 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $148.44 (1.4% Upside)

#7 - Kinder Morgan (NYSE:KMI)

Kinder Morgan logo

The last stock on our list is a play on the rebuilding of our nation’s infrastructure. Kinder Morgan (NYSE:KMI) is one of the largest energy infrastructure companies in North America. The company not only earns revenue from the price of energy, specifically natural gas and petroleum, but it also generates income from storing and transporting these liquids and others.

No matter how you view the nation’s renewable energy future, fossil fuels are going to play a significant role in building out that underlying infrastructure. Kinder Morgan relies on volume for its revenue. That was an issue in 2020. However, early indicators suggest that volume is increasing which should serve as a catalyst for KMI stock.

Kinder Morgan also currently has a very tasty dividend yield of 6.2% and has averaged a 107.50% dividend growth in the last three years. Kinder Morgan is not a growth stock, but the stock is up over 50% since November  2020.

About Kinder Morgan
Kinder Morgan, Inc operates as an energy infrastructure company in North America. The company operates through Natural Gas Pipelines, Products Pipelines, Terminals, and CO2 segments. The Natural Gas Pipelines segment owns and operates interstate and intrastate natural gas pipeline, and underground storage systems; natural gas gathering systems and natural gas processing and treating facilities; natural gas liquids fractionation facilities and transportation systems; and liquefied natural gas liquefaction and storage facilities. Read More 

Current Price: $18.20
Consensus Rating: Hold
Ratings Breakdown: 4 Buy Ratings, 10 Hold Ratings, 4 Sell Ratings.
Consensus Price Target: $16.93 (7.0% Downside)


The capital gains tax rate is a policy lever that politicians on both sides of the aisle use to express their belief on the role the government should play in the nation’s economy. Advocates of an economy fueled by the private sector seek to keep capital gains as low as possible.

These individuals are also likely to point out that taxing capital gains from after-tax dollars is taxing the same money twice. On the other hand, advocates of a more activist government seek to raise capital gains to pay for a more expansive government.

Does a capital gains tax affect investors? The fact is a capital gain is only realized when an asset, such as shares of a stock, are sold. However, since selling an asset doesn’t necessarily mean cashing out the investment, there can be many unintended consequences of such a tax hike.

When investors hold onto assets it can have an effect on their individual portfolios because they are not benefiting from diversification. And when investors are choosing to hold their assets rather than trade them, it can have an effect on the broader market as well.

7 Stocks to Support Your New Year’s Resolutions

After a year like 2020, many Americans figure that just getting to 2021 was enough. But for many people, the start of a new year still means making resolutions. And while many Americans are still waking up to Groundhog’s Day, there is hope that things will look dramatically different in September than they do right now.

Some of the most popular resolutions include losing weight, exercising more, or taking steps to get our life and/or business more organized. And many pure-play companies lean into these trends and are doing well.

As an alternative to this, you can also invest in companies that are not pure plays but can still benefit from consumers looking to start fresh. Owning these stocks helps you manage your risk. If the trend holds, you can ride the wave. On the other hand, if the wave turns into a ripple, the stocks have other catalysts to get them through.

In this special presentation, we’ll take a look at both of these categories. We’ve got several pure-play companies that let investors buy stocks in companies benefiting from these trends. We’ll also give you a few stocks that fall in the latter category.

These are stocks that you might buy at any time and for many reasons. However, they present excellent buys as the new year begins.

View the "7 Stocks to Support Your New Year’s Resolutions" Here.

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