Investments

Copyright 2006 Rafael Velez

Bank Of America Investment 2006 is another strong year for dividends. For the third year in a row, a growing number of companies have either increased their dividends or begun paying dividends. In addition, more investors are paying attention to the solid companies that are capable of paying dividends. That is a big change from the late-1990s, when investors by and large shunned yields and many companies refrained from paying them, so that stock market yields in the U.S. plunged to unprecedented lows. History shows, though, that over longer periods of time dividends have always been an essential component of total return, regardless of which direction the market has headed. Between 1926 and 2004, dividends accounted for roughly 40% of the average annual return of the U.S. stock market.

During the previous five years, high yield bonds have generated superior returns compared to more conservative bond funds. However, these returns are less than those of some aggressive equity funds. Investors should invest a portion of their portfolio in this investment category to reduce their risk and increase their income and return potential.

Investment Opportunity Another impetus for the dividend resurgence, of course, has been the Jobs & Growth Tax Relief Reconciliation Act of 2003, which lowered the maximum tax rate on long-term capital gains and qualified dividends to 15%. With a more level playing field between the taxation of capital gains and dividends, companies can more clearly decide what allocation of capital is best for shareholders over the long-term rather than what is more tax-efficient.

Banc Of America Investment There are relatively few individual securities that provide a high current yield and grow their dividends, so the challenge for portfolio managers is to build a portfolio of companies that, as a whole, meet both criteria. That requires in-depth, company-by-company, and increasingly, global research. The search often begins on familiar terrain. Electric utilities, oil and gas companies, real estate investment trusts and banks are classic examples of sectors that have traditionally paid generous dividends and increased them in order to make their stocks appealing to investors.

$24.99 Description Chapter (PDF) Table of Contents (PDF) Index (PDF) Bonds and bond funds are among the safest and most reliable investments you can make to ensure an ample and dependable retirement income — if you do it right! Bond Investing For Dummies helps you do just that, with clear explanations of everything you need to know to build a diversified bond portfolio that will be there when you need it no matter what happens in the stock market.

Banking Investment Our firm continues to recommended equity income funds to clients as core holdings in a diversified portfolio, as a part of their college savings plan or to produce reliable quarterly income in retirement. While these holdings have delivered above average returns for years, it is important to remember that it is not the objective of the funds to beat a stock market index such as the S&P 500. (The S&P 500 consists of 500 stocks representing major US industry sectors.)

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Investment Solution Strategic It is the objective of the funds to provide an attractive long-term return by pursuing a conservative strategy focused on providing above-average current income and growth of dividends over the years. Although the majority of assets have typically been held in U.S. based companies, the funds have the flexibility to invest anywhere in the world. In the past, the U.S. stocks provided some of the most reliable dividend income in the world. Now, the U.S. is a relatively paltry source of dividend income, and superior yields and dividend growth come from companies based in Europe and Asia. Many of these equity income funds feature low expenses, experienced managers, limited volatility and steady long-term performance.

High Yield Plus Fund Inc. (the Fund) is a diversified, end management investment company. The Fund's primary objective is to provide a high level of current income to shareholders. It seeks to achieve this objective through investment of at least 80% of its investable assets in publicly or privately offered, rated securities of comparable quality. As a secondary investment objective, the Fund will seek capital appreciation, but only when consistent with its primary objective. The Fund has agreements with, among others, Wellington Management Company, LLP (the Investment Adviser) and Prudential Investments LLC (the Administrator). The Investment Adviser makes investment decisions on behalf of the Fund.

Investment Banking Services (Review the prospectus before investing. Past performance is no indication of future results.)

Bank Investment Source: Triump of the Optimists, 101 Years of Global Investment Returns, Dimson-Marsh-Staunton

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Online Investment Services Rafael O. Velez III is the Managing Director and Registered Principal of Summit Financial Advisors, LLC, based in San Mateo, California. Additional resources and ideas are offered on their Web site, http://www.summit-advisors.com . Please e-mail comments about this article to rafael@summit-advisors.com.

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