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The Use And Abuse Of Dividend Strategies

The Use And Abuse Of Dividend Strategies

by Robert J. Martorana

The quest for yield has led to high valuations for dividend stocks and boom times for equity income funds. The problem comes when investors use dividend strategies too aggressively or as a cure-all substitute for financial planning, asset allocation and risk management. But there are certain guidelines that have proven to deliver superior results when constructing a dividend portfolio.

The popularity of dividends is waning. Recent data for equity-income funds shows outflows and lagging fund performance. As interest rates rise and as the economic outlook becomes more conducive to growth, valuations are likely to come under further pressure.

I will look at the underlying justification for a dividend-based strategy and at how the most popular funds have performed recently. I...