An article from the WSJ discusses new ways to invest for income eschewing the traditional methods many investors have used in the past. It states 5 things to consider when looking to build a dividend strategy which include the following:
- Avoid the highest yielding stocks and funds – with rising rates, investments that paid little to no dividend actually fared better than those that had high payouts during the most recent period from last May to September.
- Accept low dividend paying companies in exchange for future growth – a case can be made dividend growth is more important than rate.
- Watch fund expenses – high yielding funds can get significantly offset by expenses.
- Spread risk through diversification – consider buying funds that are different than the traditional large cap blue-chip dividend paying fund.
- Use dividend stocks as only one source of income – consider alternatives such as bonds, preferred stock, and master limited partnerships.
I think these are all good points to take in but aren’t necessarily any different than what we’ve been doing in the past. There are many ways to generate income in your portfolio but make sure you know what you own and how this income is being generated. Also consider the risks involved which isn’t discussed in this article.