Most funds that specifically buy dividend-paying stocks outperformed the broad U.S. stock market over the last decade. These funds generally fall into one of two categories:
* Rising dividend funds. Some funds invest only in companies that have increased dividends every year for the past 10 years, for example. Such companies tend to be financially successful but the actual yield to investors might be low. The performance of the fund will depend on whether its stocks grow in value.
* High dividend funds. Other dividend funds invest in companies with a relatively high payout. Now that the S&P 500 has an overall dividend yield around 2%, such funds might buy only companies with dividends over 3%, or those over 4%. Other screens might be in place to prevent the fund from buying companies about to cut their high dividends.
Neither type of fund is necessarily better than the other, and neither is guaranteed to beat the market. If the idea of owning a portfolio of dividend-paying stocks appeals to you, read over the fund’s literature carefully. See what criteria it uses to pick its stocks, and whether you like that approach.