Funds That Pay Dividends

Since President Bush formally introduced his economic stimulus plan two weeks ago, political and financial pundits have traversed miles of column inches debating its merits. A key piece of the plan is the elimination of taxes on dividends, the excess cash companies generate and send back to shareholders (i.e., the company's owners) to do with as they please.

Investors are understandably curious about the President's proposal, and so we've assembled a collection of articles that address the possible implications. Click here to peruse those, but read below to learn how the  Premium Fund Selector can help you identify high-quality, high-yielding equity mutual funds.

Even before the President's proposal, in fact, such funds were attracting attention, with the protracted bear market making stodgy old dividends like Aunt Ethel used to live on seem downright sexy. Unlike earnings, after all, companies can't fudge dividends: They either pay and grow them or they don't. That metric is a blunt instrument, of course, but it does provide a short-hand way of assessing corporate health.

This week's screen will ferret out just those diversified-equity funds that, in addition to superior long-term performance, also have trailing 12-month yields that exceed the category norm. Moreover, because under President Bush's plan bond yields would continue to be taxed; only funds that earn their plump payouts through an above-average focus on high-yielding equities will make the cut. We'll also discard multiple share classes, offerings that aren't open to new investment, and those with high minimums and above-average expenses. Low costs always figure in our screens, but they're even more critical here: Fund companies are required to deduct annual operating expenses from every dividend check they cut.

Fund Category = Domestic Stock (ex-specialty)
Morningstar Rating >= Four Stars
Trailing 12 Month Yield >= Category average
10 Yr Return % Rank Category <= 25
% US Stock >= 90
% Bond < 5
% High Yield >= Category average
Expense Ratio <= Category average
Closed to New Investment = No
Minimum Initial Purchase <= 5000
Distinct Portfolio Only = Yes

Click  here to run this screen yourself.

As of Jan. 16, 2003, a grand total of 20 funds make it through our screen. Out of a universe of thousands, that's a highly manageable number for further research. To get going on that, just click on the fund's name.

And be sure to save this screen for future reference: If Bush's proposal is enacted in its current form, dividend-paying companies will become tax-favored investments--and the high-yield subgroup is sure to attract even more attention.