The Biggest Dividends Aren’t Necessarily the Best

RISK-AVERSE investors seeking steady income have had little to cheer about in recent years. Waiting for Godot may have been less frustrating than waiting for interest rates to rise on conservative financial instruments like certificates of deposit and savings accounts. Still, many people found solace in dividend-paying stocks and the mutual funds and exchange-traded funds that hold them. In a sign of the popularity of dividends, money poured into income-producing stock mutual funds through 2011, 2012 and most of 2013.

But in September, the mood of investors apparently changed: The fund flows reversed, according to Jeff Tjornehoj, head of Americas research at Lipper, and cash flowed out of these funds late last year and early this year. But low-growth, high-dividend stocks can become overvalued. “The biggest concern with dividend investing is when people become indiscriminate, buying dividend stocks without regard to other metrics,” Mr. Considine added.

Source: New York Times

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