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ETF Specialist

Don't Focus on Dividends Alone

Dividends can be enticing, but focusing narrowly on them can lead to trouble.

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The article was published in the July issue of Morningstar ETFInvestor. Download a complimentary copy of Morningstar ETFInvestor by visiting the website.

Dividends aren’t as important as they might appear. True, dividend payments can impose discipline on managers, making it harder for them to squander shareholders’ money on low-return pet projects. And yes, high-yielding stocks have outpaced their lower-yielding counterparts over the long term, as shown in Exhibit 1. But there does not appear to be a causal relationship between dividends and returns.

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Alex Bryan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.