Dividend Payers Hold Appeal, but Be Mindful of Risks
Don't swap your whole fixed-income position for dividend-paying stocks.
More than 1,500 Morningstar.com Premium subscribers participated in my recent Web seminar, entitled "Morningstar's Best Ideas for 2010 and Beyond." (Premium users can watch a replay by clicking here; free members, learn more here.) I also received many terrific questions during and after the Web seminar, including this one about the appropriateness of dividend payers as a substitute for bonds.
Question: Are high-dividend-paying stocks a decent proxy for bonds if you think interest rates are going up?
Answer: Yes, but only in small doses, particularly if stability of your principal is as big a goal for your fixed-income portfolio as is current income.