Word: dividend
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...there's a new consideration as well: this summer the tax rate on dividend income was cut to as little as 15% from as much as 39%. Older funds do not have a mandate to invest in dividends that qualify for the lower rate. So they may hold real estate investment trusts (REITs), certain foreign stocks, preferred shares and even bonds, for which dividends remain taxable at higher rates. Good managers will probably shift accordingly. Still, there is a new generation of funds responding to the tax changes...
...least 19 dividend-oriented funds have been launched since last December, enlarging that universe by a third, reports fund tracker Morningstar. On the radar of these funds are companies like Citigroup and Microsoft, which are dramatically raising dividends. Citi boosted its payout 75%; Microsoft paid its first-ever dividend in March and then doubled it on Sept. 12. Eventually, fund investors will want to seize on this trend. The fund industry isn't exactly making things simple. Even some of the new dividend funds invest in REITs. Others trade actively and could saddle you with a tax liability. Some managers...
...proven stock fund that yields more than 2%, yet you can get yields of 4% or more with shares of Dow Chemical (4.1%) or FleetBoston (4.7%). Individual stocks also let you sidestep fund fees. What you give up is diversification, which provides shelter from things like Kodak's 72% dividend cut last month...
Fund investors looking for an immediate income stream are bound for disappointment. I could find only one proven dividend fund with a yield above 2%: American Funds Washington Mutual (2.1%). The just launched Alpine Dynamic Dividend Fund hopes to fill this void, aiming for a yield above 4%. But its strategy calls for heavy turnover in a third of the portfolio as it tries to capture dividends and then sell. Alpine Management is adept at tax efficiency. Yet heavy trading leaves investors vulnerable to a tax bill from short-term gains...
...promising new fund is Vanguard Dividend Growth, which is the old Vanguard Utilities Income. It has broadened beyond utilities and focuses on companies that pay big dividends or are likely to start paying them. It boasts low costs and has valuable tax losses left from the old fund to offset future gains and boost returns...