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April 9, 2012

Thinking about buying a “Dividend-Fund”?

Many commentators are telling investors to invest in a mutual fund or an exchange-traded fund (funds) that invests in companies that pay dividends.  Statistics indicate that there is a rush to buy such funds.  Jason Zweig gives some of the reasons in his April 7th article.  He cautions investors not to mistake such funds for bonds. 
“When you buy bonds you collect interest and get your money back (not counting inflation) when the bond matures.”  The values of stocks of dividend paying companies are not stable.  There is not a maturity or any other date that you know what the value will be of a stock of a dividend paying company. 
He also discusses that many funds have different criteria for picking dividend-paying stocks.  Examples of differences include: industries, length of time they have paid dividends, required growth in dividends.
An investor should know why they are interested in a particular fund.  Then see the fund hold stocks that are consistent with what they are looking for.  As important is how such funds fit into their existing funds.  Some funds they own that do not have “dividend” in their names may own primarily dividend paying stocks.  Many value funds and income funds hold such stocks. 

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