Dividend Funds Are A Haven

Prices are sure to fall in the event of a market-wide selloff. But there are reasons to expect dividend-themed funds to be the relative outperformers they usually are when that happens. Last Wednesday, as the blue-chip Dow plunged more than 300 points, Vanguard High Dividend Yield (VYM), Vanguard Dividend Appreciation (VIG), iShares DJ Select Dividend Index Fund (DVY), and PowerShares Dividend Achievers Portfolio (PFM) all fell by a smaller percentage than the Dow.

Part of the reason why dividend funds should be insulated even in the event of a dramatic increase in dividend taxes. WisdomTree Investments reported last week that only about 52% of qualified dividends went to tax filers earning $250,000 or more in 2009, the latest year for which figures are available. (Qualified dividends are those taxed now at 15%. That’s all but certain to change with the fiscal cliff.) Also, the WisdomTree study points out that tax-insensitive retirement accounts hold over $7.8 trillion in equity assets. In all, that will sharply lessen the perceived impact of a dividend-tax hike.

Source: Baron's

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