Dividend reinvesting is a time-honored wealth-building method.
It takes advantage of the stock market's inherent upward drift,
individual stock appreciation, and the incredible power of
Today's ultra-low interest rate environment makes developing a
diversified, dividend-paying portfolio all the more crucial to
accelerate your journey toward wealth.
However, many investors lack the capital, time or inclination
to build such a portfolio from the ground up.
While far from foolproof, dividend-paying mutual funds are
professionally designed and managed portfolios of
dividend-yielding financial instruments. These funds can also
provide investors exposure to exotic derivatives and other
securities that may be difficult or impossible for retail
investors to access.
Let's take a closer look at three of my favorite
dividend-paying mutual funds.
|1. Pimco Real Estate Real Return
Strategy A (
This fund has $3.8 billion under management and yields
close to 8% annually. Its five-year average return is
30.8%, and the fund is up an astounding 25.6% year to
in derivatives of real estate investment trusts (REITs),
as well as directly into REITs, stocks, convertible
securities and exchange-traded funds (ETFs). The fund has
an annual turnover of 81% and expenses of 1.14%, and
Class A shares of the fund have a minimum investment of
|2. Pimco Convertible A Fund (
Another top performer from "Bond King" Bill Gross'
company, PIMCO, this fund boasts a year-to-date return of
over 11.5% and a five-year annual average return of
is generally at least 80% invested in a diversified
portfolio of convertible securities which may be
represented by options, futures contracts and swap
agreements. Investment-grade bonds and junk bonds can
take up to 20% of the portfolio, and up to 30% may be
allocated to securities denominated in foreign
currencies. Currently, the fund has nearly a quarter of
its $206.6 million in assets under management allocated
E-mini futures contracts
on the S&P 500 Index.
The annual turnover of assets is high at 103%, and net
operating expenses are 1.05%. Like PETAX, Class A shares
of this fund also have a minimum investment of just
|3. Oppenheimer Rochester High Yield
Municipal A (
goal is to provide tax-free income by investing in
securities that are exempt from federal income taxes --
specifically, high-yield municipal bonds. With an asset
base of $5.7 billion, the fund yields 7% and has gained
11.2% this year and returned an annual average of 15.5%
over the past five years.
In contrast to the PIMCO funds, ORNAX has less
turnover (just 18%) and a lower expense ratio, at 0.73%.
However, like the PIMCO funds, ORNAX's minimum investment
Risks to Consider:
These funds are subject to a variety of risks -- such as
those associated with real estate, derivatives, currency
fluctuations and leverage -- but that's part of the deal in
pursuing high yields. That's not to mention the fees and costs to
Action to Take -->
I like all three of these mutual funds, with the Pimco Real
Estate Real Return Strategy A (
) my favorite. Making equal allocations to each is a
three-pronged approach to building a well-diversified,
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.