Another semi-conservative option I am considering for my Ameritrade side-bet goal is buying stocks with high dividends. Due to their favorable tax rate of 15%, a semi-sluggish stock market, and itty bitty bond yields, dividend-paying stocks are getting popular. Here are some of my findings:
There are many ways of getting into the action, my leading favorite is the ETF iShares Dow Jones Select Dividend Index fund (DVY) that invests in dividend-paying stocks. DVY owns the 50 highest-yielding stocks in the Dow Jones Total Market Index, excluding real estate investment trusts (they don’t get the 15% tax rate). The expense ratio is also a very reasonable 0.40%.
Dogs of the Dow is a strategy that involves picking the ten stocks of the Dow Jones (DJIA)which have the highest dividend yield within the last year. I have heard some good things and more bad things about this strategy. Here are some performance comparisons, note that they lag the S&P 500 in the long-term, but are much more stable.
Here is another article on ADVDX, an actively managed fund that seeks income through dividends.
Even the semi-famous bull Siegel now has modified his position to support buying dividend paying stocks. An interest except is the assertion that the 100 highest-yielding stocks in the S&P 500 have done better than the index as a whole over the past 50 years. Hmm, but could you identify those stocks ahead of time?
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ADVDX is an interesting fund…but before investing, check out the post that quotes a Kiplinger article on how they get such a high yield. I’m not sure it’s sustainable.
http://socialize.morningstar.com/NewSocialize/asp/FullConv.asp?forumId=F100000046&convId=136650#854961
Vanguard also has a dividend focused fund with an ER of 0.32% (VEIPX).
In addition to DVY, ADVDX(which is a well run fund by Jill Evans), check out PEY (another recent Div ETF), TGIGX (TCW Div Focussed Fund), and the Div Stocks listed on DividendDetective.com.
You will have to do some research as to which ones you want to have in a taxable account and which in tax-deferred or tax-advantage portfolio.
My personal take is keep DVY, and individual stocks in taxable account and ADVDX, TGIGX in Tax-deferred/advantaged accounts.
You will have to research out the Turnover, and Cap Gains to feel comfortable about the taxes you will pay.
Thanks for the comments! There’s definitely a growing number of choices to fight for a share of the dividend-seeking money.
You need to update your info on ADVDX with latest news and performance – PRNewswire, June 29,2005. Suggest you read Business Week Online, April 18, 2005 – title: Avoiding Tax to the Max. ADVDX is 1 of 5 picks for last year.
ADVDX has payed $0.85 to date and will pay around $0.20 at the end of the month if history repeates last quarter. If you are thinking of buying in a taxable account weight until next month. If in an IRA account take the dividends and buy now. Have a nice day.
Wipe the collective egg off your faces with no short cap. gains for ADVDX and income of $1.535 per share for 2005 @ 15% tax rate for open accounts. Not bad for a fund that has taken a lot of heat on other boards, 33.7% increase versus 2004 income paid. Look for increasing monthly div. payments in 2006 as there looks like room to go from .06 per sh. to .07 or higher. This fund is a Managed DRIP mutual fund that is walking it’s own path.
Place to get good info.:
alpinefunds.com/289053.pdf = doc.pages 10-14
alpinefunds.com/372145.pdf = dividend dist.
alpinefunds.com/298001.pdf = rankings
DONOT add the = to the address
ADVDX – I was thinking of replacing my TIPS fund with this and treating it more as a high yield *bond* fund. TIPS don’t seem to behave differently than any other bond fund.