High-Yield Dividend Paying Mutual Funds - Such a thing?

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High-Yield Dividend Paying Mutual Funds - Such a thing?

Postby sheople2 » Sat Mar 14, 2009 11:18 pm

Suze Orman is now recommending high-yield, dividend paying individual stocks or exchange traded funds, so that you are, in a sense, getting paid to wait. I'm not comfortable with individual stocks or ETFs at this time. Therefore, I was wondering if there is such a thing as high-yield dividend paying mutual funds and if so, which of the Vanguard funds are those specifically?

Sorry for unsophisticated and probably stupid question. Thanks in advance for your patience.

Please keep answers simple.
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Postby EmergDoc » Sat Mar 14, 2009 11:26 pm

#1 Don't take financial advice from Suze Orman.

#2 Those who invest using a dividend method have been awfully surprised as many companies have dramatically cut their dividend during this bear.

#3 Dividend/Fundamentally weighted funds/ETFs are available, but they really are nothing more than a Value fund. Vanguard has one:

https://personal.vanguard.com/us/funds/ ... IntExt=INT

It is trailing the overall market by 7% year to date. It is trailing the value index fund by 1.5% year to date. Last year's returns are similar.

Good luck investing.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Postby yobria » Sat Mar 14, 2009 11:36 pm

DVY is a popular high yield ETF. It's down about 26% this year so far:

http://finance.yahoo.com/q/bc?s=DVY&t=3 ... &c=%5EGSPC

High yield funds are poor investments on many levels:

-No evidence paying a dividend is better than doing other things with earnings (retaining for growth, share buyback, etc)

-No evidence high yield funds outperform the market historically (other that the value tilt)

-Tax unfriendly

-Poorly diversified

-As emergdoc mentions, dividends are being cut everyday.

Nick
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Postby DaveS » Sun Mar 15, 2009 9:43 am

The detractors of dividend paying funds have recency as their ally. DVY was the first dividend oriented ETF. It did quite well after it was introduced because it over weighted financials. That is to stay it was about 40% financial when they had a market cap of about 20%. As all know, in the last year financials got clobbered. If you invest and overemphasize yield you get results like that. Part of the time you have an over performance and part of the time an under performance. That is why many of the experts suggest you tilt or overweight based on the Fama French factors rather than yield. IE overweight value and small, not dividend. Vanguard does have a large blend ETF that is dividend oriented. VIG Since it's introduction it is ahead of Total Stock Market (VTI) by about 10 points, and considerably ahead of DVY. The difference is the way they are constructed. DVY is the 100 highest dividend players as long as they pay out less than 60% of earnings. VTI is based solely on market cap without considering dividends. VIG selectively takes out non dividend paying stocks from VTI but retains the stocks in the same industry weightings and book to value as the total market. Roughly yield is 2% VTI, 3% VIG and 4% or more for DVY. So if you want to overweight dividends a bit of moderation will reduce volatility.
Over the years on this board arguments change with the relative performance. When dividend stocks do well their advocates sound like they know what they are talking about. When dividend stocks do poorly their detractors sound like they know what they are talking about. Fama French found that long term performance was mostly explained by asset class (IE size and value) and not yield. Dave
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Re: High-Yield Dividend Paying Mutual Funds - Such a thing?

Postby Gmaloof » Sun Mar 15, 2009 12:40 pm

sheople2 wrote:Suze Orman is now recommending high-yield, dividend paying individual stocks or exchange traded funds, so that you are, in a sense, getting paid to wait. I'm not comfortable with individual stocks or ETFs at this time. Therefore, I was wondering if there is such a thing as high-yield dividend paying mutual funds and if so, which of the Vanguard funds are those specifically?

I heard Orman speak in January, 2009 and at the time she was recommending the SDY dividend ETF.
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Postby haberd » Sun Mar 15, 2009 12:52 pm

You could do worse than listening to her, especially compared to 99% of the other media "advisors".
I think she means that such corporations tend to be the soundest financially - you will probably be avoiding most of the least viable corporations, and at least you know you will be getting some of your money back. In other words, a flight to safety - or at least perceived safety. It hearkens back to the days when regulated utilities with monopolies like AT&T were considered great investments comparable to bonds. Times have changed.
Beware academic studies based on historical results and TV advice, but if I had to choose one, I think I'd go with the former.
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Postby ken250 » Sun Mar 15, 2009 2:33 pm

Hi sheople2,

VG tends to offer somewhat conservative dividend-paying funds, my assumption has always been diversification trumps specific strategies in VG's eyes. Understandable.

VG offers 3 dividend-oriented funds:

1) High Dividend Yield Index fund: It focuses on high yielding stocks.
2) Dividend Appreciation Index fund: It focuses on dividend growers, not necessarily the same as high yielders.
3) Equity Income: It focuses on high yield, dividend growers, and deeper value stocks which may not be high yielding nor dividend growers.

I use Equity Income. Another fund you might take a look at is Wellesley Income, but it holds about 60% in bonds and I'm not sure you want any more bonds.

If you're after really high yield you're going to have to go outside VG, but you will pay more.

Good Luck, Ken.
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Postby Karl » Sun Mar 15, 2009 5:25 pm

EmergDoc wrote:#1 Don't take financial advice from Suze Orman.


Suze is the woman with selective memory, unable to recall how she wildly endorsed QQQ back in 1999. Those who took such advice probably still remember their losses well.

EmergDoc wrote:#2 Those who invest using a dividend method have been awfully surprised as many companies have dramatically cut their dividend during this bear.


Until the summer of 2008 GM paid a very handsome dividend. They eliminated their dividend. Now their stock price isn't much more than what their annual dividend rate used to be.
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