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Diving for Dividends? Look Beyond Yield Alone

We screen for funds that deliver stability as well as yield.


This week marks the one-year anniversary of stocks' rebound. And any time you see a market move like this one, it's worthwhile to pause and consider what lessons you've learned. One clear takeaway--albeit not a particularly earth-shattering one--is that retirees can and should have stocks in their portfolios. And because many retirees also look to their portfolios for current yield, dividend-paying stocks provide a good convergence of both income and long-term capital appreciation potential.

Granted, dividend yields aren't particularly high for the broad market right now--currently about 1.7%. But dividend-paying stocks offer a few key advantages for retirees, provided you stay attuned to their potential for volatility and don't use them to supplant your entire fixed-income portfolio. While stocks in aggregate aren't all that cheap right now, they very likely offer better long-term appreciation potential than bonds. (Roger Ibbotson laid out that point effectively at the recent Morningstar Ibbotson conference.) The tax treatment of dividend yields is also better than what bonds provide, at least currently and potentially in the future, as well. And while stocks wouldn't be impervious in the face of a big jump-up in interest rates, the negative fallout might not be as direct as bonds might face.

So assuming you're a retiree on the hunt for dividend-paying stocks and funds, where do you start? The following screen can help turn up some investments worthy of future research.

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.