| 2006 is another strong year for dividends. | | | | paid generous dividends and increased them in |
| For the third year in a row, a growing number | | | | order to make their stocks appealing to |
| of companies have either increased their | | | | investors.Our firm continues to recommended |
| dividends or begun paying dividends. In | | | | equity income funds to clients as core |
| addition, more investors are paying attention | | | | holdings in a diversified portfolio, as a |
| to the solid companies that are capable of | | | | part of their college savings plan or to |
| paying dividends. That is a big change from | | | | produce reliable quarterly income in |
| the late-1990s, when investors by and large | | | | retirement. While these holdings have |
| shunned yields and many companies refrained | | | | delivered above average returns for years, it |
| from paying them, so that stock market yields | | | | is important to remember that it is not the |
| in the U.S. plunged to unprecedented lows. | | | | objective of the funds to beat a stock market |
| History shows, though, that over longer | | | | index such as the S&P 500. (The S&P 500 |
| periods of time dividends have always been an | | | | consists of 500 stocks representing major US |
| essential component of total return, | | | | industry sectors.)It is the objective of the |
| regardless of which direction the market has | | | | funds to provide an attractive long-term |
| headed. Between 1926 and 2004, dividends | | | | return by pursuing a conservative strategy |
| accounted for roughly 40% of the average | | | | focused on providing above-average current |
| annual return of the U.S. stock | | | | income and growth of dividends over the |
| market.Another impetus for the dividend | | | | years. Although the majority of assets have |
| resurgence, of course, has been the Jobs & | | | | typically been held in U.S. based companies, |
| Growth Tax Relief Reconciliation Act of 2003, | | | | the funds have the flexibility to invest |
| which lowered the maximum tax rate on | | | | anywhere in the world. In the past, the U.S. |
| long-term capital gains and qualified | | | | stocks provided some of the most reliable |
| dividends to 15%. With a more level playing | | | | dividend income in the world. Now, the U.S. |
| field between the taxation of capital gains | | | | is a relatively paltry source of dividend |
| and dividends, companies can more clearly | | | | income, and superior yields and dividend |
| decide what allocation of capital is best for | | | | growth come from companies based in Europe |
| shareholders over the long-term rather than | | | | and Asia. Many of these equity income funds |
| what is more tax-efficient.There are | | | | feature low expenses, experienced managers, |
| relatively few individual securities that | | | | limited volatility and steady long-term |
| provide a high current yield and grow their | | | | performance.(Review the prospectus before |
| dividends, so the challenge for portfolio | | | | investing. Past performance is no indication |
| managers is to build a portfolio of companies | | | | of future results.)Source: Triump of the |
| that, as a whole, meet both criteria. That | | | | Optimists, 101 Years of Global Investment |
| requires in-depth, company-by-company, and | | | | Returns, Dimson-Marsh-StauntonRafael O. Velez |
| increasingly, global research. The search | | | | III is the Managing Director and Registered |
| often begins on familiar terrain. Electric | | | | Principal of Summit Financial Advisors, LLC, |
| utilities, oil and gas companies, real estate | | | | based in San Mateo, California. Additional |
| investment trusts and banks are classic | | | | resources and ideas are offered on their Web |
| examples of sectors that have traditionally | | | | site, . |