Dividend Stock Funds

From Mike's e-mail - mike@moneybulletin.com.

From WSB listener Sally: Hi Mike! I enjoy your show very much and get a lot of useful information. My question is: Schwab has come out with a mutual fund that consists of only stocks that pay consistent dividends. Because it is new and doesn't have a track record I'm not sure I should invest in it. What do you think? I want to invest in this type of fund. Can you suggest other funds of this type that have been around for a while. Thanks for your input.

REPLY FROM MIKE KAVANAGH, CFP - You are right, it's "hop on the bandwagon" time at Schwab again. The theory behind this fund is that it will buy stocks from its A list, but that list changes quite a bit, meaning you might have short term capital gains from such a fund. Also, look out for the expense ratio - which diminishes your collectible yield. Also, if the fund trades a lot, there will be additional commission expenses which you won't be able to see but will hold the fund down. Now, here is a challenge for you. Why not buy some utility stocks yourself like Southern Company and Duke Power paying 4.8% for Southern and 6.3% for Duke?(yields as of 9/8/030.
Also, later this year there will be a dividend index fund coming out - it will be what is known as an ETF, or what I call an index stock. (You pay a one time commission to buy an ETF which in turn charges only an index fund expense ratio to keep the fund glued together, so to speak. See the following from www.morningstar.com on 8/28/2003:
"Dividends are in vogue right now, and Barclays isn't about to let an opportunity slip by. The firm has filed with the SEC to offer iShares Dow Jones Select Dividend Index Fund. The index will include the 50 highest dividend-yielding, non-REIT companies in the Dow Jones U.S. Total Market Index. The companies will be weighted in the index by dividend per share. The fund will charge 0.40% per year, exclusive of brokerage commissions."
No stock symbol has been set for the new ETF, but read up on index stocks on www.moneybulletin.com - two columns under my name:

New Revolution in Investing - Index Stocks (ETF's) and
Sector Index Stocks - ETF's
For ishares in particular, go to www.ishares.com
Mike Kavanagh, CFP