Interesting, but I'm not familiar with the philosophy behind this strategy.

Any opinions on it?

Does it make sense for you? Depends on your investment comfort level and whether receiving dividends will present a tax issue for you (e.g., holding such a fund outside of a 401(k) could expose you to dividend income on which you would be taxed when you receive it). Check the prospectus to see where this fund is on investing in bonds and find out how they handle the dividend $$.

If you reinvest it instead while you are working, It achieves 2 purposes. First if you reinvest the dividends you have a compound effect and since many companies have dividends of 4% or so, it is almost equivalent to what you can get at a bank. Of course you trade safety for potential appreciation. Next if you are choosing companies that have a history of increasing dividends, chances are they are solid companies with good management and good track records. Also ideally you should wait for a market setback to buy (think market wide problem rather than Enron type scandal)

What is making this stradegy more popular in the US is the recent capital gains treatment of certain dividends. Years ago they were considered ordinary income, now they get better treatment as opposed to bank interest which is still ordinary income. A word of caution about the Canadian book (which I have not read but I read enough about it in the last few days), in Canada all dividends are tax free on the theory that these are corporate porfits which the company has already reported, so taxing it again would be a double tax. Obviously not the case in the US

It seems like a good alternative to the usual SP 500 fund, which hasn't done anything since the millenium.

A Canadian investor owning Canadian stocks has a method of calculation that gives a substantial dividdend tax credit, increased substantially last year, meaning that s/he pays a low rate of tax on such dividends - but does not escape tax entirely.

With one exception.

If s/he is single and has *no other income*, regular tax credits added to the dividend tax credit team up to mean that s/he can earn about $49,000. annually before becoming tax-liable. Except ... in our province, the "taxpayer" would have to pay Ontario Health Levy of about $600. at that level of income.

With a low-income spouse, charitable or political contributions, (and/or high rate of eligible medical costs, rather unusual in Canada, as we do not pay fees directly for most medical services), the tax-free level goes higher, due to additional credits.

If s/he has other income, the rate of tax on Canadian dividends is lower - but s/he doesn't escape tax entirely.

Which is why I much prefer to earn Canadian dividends over earning interest, which is taxed at top rate.

The investment method that the guy whose 10-year record, back-checked for 20 years, I've followed uses a Canadian equivalent of the "Dogs of the Dow" system.

Based originally on the Dow-Jones Industrial average, they picked the 10 stocks paying the highest rate of dividend with cheapest price and bought a position in each.

Or, in the Canadian system, bought a position in each of the cheapest 5.

A third system was to drop the cheapest priced one, as one possibly in trouble, maybe having suffered recent slide in stock price but dividend rate having been maintained till now, but possibly about to be cut. Then to buy a double-sized position in the second cheapest.

That last, though more volatile, over a long term sometimes turned in the best rate of total return (if you don't mind riding roller-coasters).

The investor re-balanced once per year, and it took about an hour or two to do the calculations. Leave everything alone through the rest of the year.

In the Canadian system, usually about 70% of the holdings carried forward from one year to the next, so one had low levels of commissions to buy and sell.

His system out-performed over 90% of mutual funds' managers records, and the market averages. Plus, very few mutual fund managers succeed in outperforming market averages over a number of years ... so in a number of cases it makes sense to buy Exchange Traded Funds, and pay under 1% fees. Actually, a substantial portion of the holdings of a number of fund managers is ETFs.

In Canada, we pay higher rates of management expense to mutual fund managers than you do, especially the equity-based ones, which I prefer, so I haven't bought a mutual fund in the last 15 years.

Learn to be my own manager, and stick the mutual fund manager's fee in my pocket.

Something to be considered is that in a heavy correction, stocks paying dividends tend to slide less that the average.

And a few stocks have had a record of growth in amount of dividend paid every year for the past 40 (I think J & J) and some others for almost that long.

Now that the market is so much broader than in earlier years, it might be well to consider a wider-ranging system to use as base for one's evaluation than the Dow-Jones 30 Industials. But stay with large, quality companies.

Learn how money works - an interesting hobby ... that pays well!!

Very few objective, unbiased advisors around.

ole joyful

As someone who works at a publicly-held company that has provided a dividend for some time now, I can tell you that there are two ways to improve profits: make more revenue or cut costs.

The benefit to a shareholder of either approach over a quarter (or two or three) is identical. However, I've seen companies choose to cut costs so deeply (everywhere but Mahogany Row, of course) that their ability to compete down the road (and to generate that same level of dividend) is compromised by the hiring and training and capital investing they didn't do. They'll scrimp their way to "greatness" until the good workers at the company figure they have little to lose by going elsewhere -- so they do.

I don't think it would take much to convince you that this is a penny-wise and pound-foolish way to spend money. Yet that dividend mark must be hit....

You're looking to avoid companies which are shedding product lines, employees, and office/manufacturing space. There's nothing wrong with companies killing off unprofitable products, consolidating space, etc. But a company that is making a habit of shedding product lines which aren't losing money, "maintaining" or actually cutting headcount, and getting rid of leased or owned space without moving the people and assets elsewhere, is cutting costs. Like I said, for a quarter or two -- not necessarily bad, especially if the moves are accompanied by a new leadership team. But a company that does it for a year on end is one that bears close scrutiny. IMHO, of course.