Beware Of The Lure Of Rich Yields

Dividends – big ones, small ones, old ones, new ones and special ones – are certainly having their moment in the investment world. From the clear appeal of a stock that pays you for holding it at a time of puny interest rates, to the likelihood of higher taxes on those payouts due to the expiration of the Bush tax cuts, the capital companies deploy to shareholders in the form of dividends has become something of an 800-pound gorilla.

While the focus has been on tax policy and companies trying to beat the clock by returning cash to shareholders before January 1, there are other trends at work that give shrewd investors an opportunity to make the most of stocks that pay dividends. Greg Adams, portfolio manager of the $83 million Alger Growth & Income Fund, stresses the importance of dividend growth rather than absolute yield. It may seem obvious that stocks with continually rising dividends are a better investment than those that merely offer a higher return at the moment, but Adams notes that investors have targeted the latter.

Source: Forbes

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