Saturday, October 11, 2003

Time ripe for high dividends

Personal finance

By Warren Boroson
(Morris County, N.J.) Daily Record

For two reasons, it might be a good time to consider buying stocks that pay generous dividends - and mutual funds owning such stocks:

• The stock market seems high-priced these days.

• Stock dividends are now being taxed leniently (a maximum of 15 percent).

Of course, if a solid company pays a nice dividend, and doesn't cut that dividend, its stock price is unlikely to fall very far - because that would boost the yield. But you must be careful.

You want a stock yielding 11.1 percent? R.J. Reynolds Tobacco. It gets Value Line's top rating for timeliness.

Among the few high-paying nonutility stocks that get Value Line's top rating for safety is New Plan Excel Realty, a real estate investment trust paying 7.5 percent.

Alas, most of the dividends from REITs don't qualify for the tax break.

Another safe, high-paying company, as Value Line sees it, is ChevronTexaco, yielding 4 percent. SmartMoney magazine recommends these dividend-paying stocks as likely to boost their dividends: Citigroup, General Electric, Johnson & Johnson, Marsh & McLennan and Procter & Gamble.

Among nonutility mutual funds, there's ING Corporate Leaders, paying an astronomical 2.9 percent.

No load. Rated "above average" by Morningstar. Low management fee (0.40 percent). Low volatility. It possesses, to quote Morningstar, "an impressive historical quantitative risk-reward profile."

Reasonable minimum first investment: $1,000.

Among utility funds, Morningstar likes Eaton Vance Utilities A, yielding 3.1 percent. It carries a 5.75 percent sales charge. None of the no-load utility funds seem especially impressive.

Funds with "equity income" in their names tend to be large-cap value funds, investing in old, established companies like ExxonMobil.

Fidelity Equity-Income and Fidelity Equity-Income II also get four stars, the former yielding 1.5 percent, the latter 1.2 percent. Vanguard Equity-Income also gets four stars. It yields 2.4 percent.

An interesting fund with a relatively high yield is T. Rowe Price Dividend Growth, which gets three stars from Morningstar and yields 1.9 percent.

If equity-income funds seem especially suitable for older, conservative investors, this fund seems suitable for younger, conservative investors.

We asked Huber a series of questions:

Question: Have dividend-paying stocks been doing well since the tax cut?

Answer: Unfortunately, no. Cyclical stocks (those that do well in a rebounding economy) have overshadowed them for the time being. But eventually dividend-paying stocks should have a decent run. The tax-law change was a significant event, especially because interest rates in general are so low.

Q: What stocks have you let go?

A: Baxter, on fundamental concerns. We sold Mattel down to a very small position on concerns about a competitor making inroads into the Barbie franchise.

Q: I see that recently you owned Pfizer. I've recommended Pfizer to a lot of people in recent years, and they're mad at me.

A: Me, too.

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