Investing In Dividends For Dummies by Lawrence Carrel

Author:Lawrence Carrel
Language: eng
Format: epub, mobi
ISBN: 9781119121978
Publisher: Wiley
Published: 2015-10-26T00:00:00+00:00

Investing in Dividend-Focused Mutual Funds

Mutual funds abound, and many of them focus more on capital appreciation than on dividends and income, so you have to be selective. In the following sections, I explain how to dig up information on mutual funds, identify dividend-focused funds, and understand how share prices are calculated. In addition, I reveal how mutual funds pay out dividends and detail some of the tax implications related to these payouts.

Spotting dividend-focused mutual funds

When shopping for dividend-focused mutual funds, don’t let the names of the funds confuse you. Some mutual funds that advertise themselves as dividend funds hold plenty of growth stocks, and many mutual funds that do deal exclusively in dividend stocks don’t even have the word dividend in their name. What’s a dividend investor to do?

The first step is to screen for dividend funds. You can do so using online tools from Morningstar, Lipper, or Charles Schwab. For example, the Lipper Leaders website enables you to screen for Equity Income Funds.

Another strategy is to look for funds that have any of the following words in their names: total return, income, or value. Some income funds or blend funds can also hold bonds, generating income from both stocks and bonds, but searching for income or value funds should screen out most of the funds that have nothing to do with dividends.

When researching funds, carefully examine their holdings to determine what portion of the portfolio is comprised of companies that pay dividends. In the fund’s prospectus, read its investment objective to determine what kind of strategy you’re getting into. Look for mutual funds that have a yield greater than the yield on the S&P 500 Index. Any funds that fall short of this benchmark don’t really qualify as dividend funds. Even among funds that focus on dividends, you can find significant differences in strategy and goals.

As with dividend stocks, you want to look for funds that raise their dividend distribution, because they invest in companies that consistently increase their payouts. A fund that has a rising dividend is making good investment choices from the payout perspective. And just like dividend stocks, you want the dividend fund to have regular payouts and less volatility than growth funds.

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