Dividends have come back into investor favor in recent months. That's not surprising. Indeed, while nobody cared too much about getting a 2% yield on a stock when stocks were rising 30% or more, suddenly a 2% yield doesn't look so unattractive when stocks are falling 30%.

Interestingly, I think dividends will become even more popular because of our new President and his plans to cut income tax rates.

Let me explain.

One advantage capital gains have versus dividend income is that capital gains are taxed at preferential rates. Indeed, the maximum tax rate on long-term capital gains is 20%. On the other hand, dividend income is taxed as ordinary income. That means that investors in the top tax bracket now pay nearly 40% in taxes on dividend income.

So why do falling interest rates increase the appeal of dividend income? Simple. Reduced income tax rates narrow the gap between the preferential tax treatment of capital gains and the tax rate on dividend income.

Thus, if tax rates are reduced over the next few months, look for investors' appetite for dividend income to increase.