Why not dividend paying funds?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
WildDog
Posts: 53
Joined: Mon Aug 04, 2008 1:52 pm

Why not dividend paying funds?

Post by WildDog » Sat Oct 25, 2008 5:37 pm

I always wondered why not dividend paying funds (or stocks like KMP) as part of an good overall AA.

It seems if you are in the 25% tax bracket, it would still be a good investment even in a taxable acct.

Any thoughts?

User avatar
PiperWarrior
Posts: 4068
Joined: Fri Dec 21, 2007 4:55 am
Location: right on course

Post by PiperWarrior » Sat Oct 25, 2008 6:50 pm

You might be interested in reading Why dividend paying stocks?.

tibbitts
Posts: 9372
Joined: Tue Feb 27, 2007 6:50 pm

Re: Why not dividend paying funds?

Post by tibbitts » Sun Oct 26, 2008 4:21 pm

WildDog wrote:I always wondered why not dividend paying funds (or stocks like KMP) as part of an good overall AA.

It seems if you are in the 25% tax bracket, it would still be a good investment even in a taxable acct.

Any thoughts?
The answer to why not dividend paying stocks is that most people can't buy enough of them for diversification.

The answer for funds is that everybody has a different criteria for what constitutes a a good fund for these stocks. The highest dividend payers are often distressed and unlikely to continue the same level of dividends, but that's hard to quantify. Value also has a variety of measures. Whatever measure you use, you may wind up overly(?) concentrated in some equity categories (financials, for example.)

So, your real question is whether you should overweight dividend paying stocks, not whether they should be part of your equity holdings. And the short answer is that there is some risk to overweighting anything.

As for whether dividends would be acceptable in a taxable account, it depends. Sometimes just $1 in extra income creates an incredibly huge increase in taxes (at least percentage-wise), even for someone in the $30k annual income range.

Paul

Post Reply