Funds for Dividend Junkies

Quality matters in a market like this. That's a no-brainer. But how do you know if a stock is "quality"? Dividends are one indicator. That's because dividend income—which is essentially a portion of company profits paid out to shareholders—helps offset fluctuations in a stock's share price, often creating a cushion during volatile markets.

Stocks that pay dividends "tend to be very solid, stable types of investments and often end up being the class act of corporate America from an investor's standpoint," says Morningstar analyst Christopher Davis. "These companies ... tend to have some sort of competitive advantage that allows them to generate excess free cash flow that they can distribute to shareholders." Funds that focus on dividend-paying stocks vary in strategy. Some sit squarely in the value camp and contain bargain-priced stocks with above-average yields. Some search for dividends abroad. Others focus more on future dividend growth than on high current yields.

Source: U.S. News and World Report

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