The new tax law in 2003 makes many dividends taxable at the capital gains rate. Look at the IRS link below. It seems that dividends will be qualified if you meet three conditions:
The dividend is from a US company or qualified foreign company (must be incorporated in the US or listed on a US stock exchange)
You or your mutual fund must hold the stock for at least 60 days during the pre-dividend period which seems to be the 120 days starting 60 days before the ex-dividend date (date at which the seller of the stock receives dividend instead of buyer if stock is sold). So, basically it just should not be a relatively short term hold.
It's not part of a list of exceptions (mostly tax-exempt companies, and savings and loan institutions, I think). Note that dividends paid by REIT funds are not fully qualified. Some of the dividends may be earned from mortgage interest which is treated as interest income.
So, basically US stocks held for a reasonable period of time will have dividends taxed at lower rates. This is supposed to expire at the end of 2008. The Bush tax cits reduced the top rate cap gains from 25% to 15% and dividends for high earners from 35% to 15%.
Here is the Fidelity description of qualified dividends
Comparison of Index Fund and ETF Qualified Dividends
One argument made in favor of index funds having a tax advantage over ETFs is that ETFs often trade their shares more rapidly to maintain a high cost basis of their underlying shares. This can result in ETF dividends failing to be classified as qualified dividends since the underlying shares don’t satisfy the requirements. This can be a substantial drawback since your ordinary tax rate may be significantly higher than the 15% tax charged on qualified dividends.
To better quantify this risk, we have compared the percent of dividends which were qualified dividends for Vanguard Index Funds and iShares ETFs for a variety of core asset classes. First, we will compare the percent of qualified dividends in 2006 then we will compare the average percent of qualified dividends over 2005 and 2006. The data was gathered from the iShares and Vanguard websites.