Wants to learn about dividend funds

Question: I’m interested in investing in dividend income funds but I don’t know much about them. Can you help? – M.H.

Gordon’s answer: Let me begin by giving you a warning: all dividend funds are not created equal. Most people think these funds pay good cash flow in the form of tax-effective dividend income but that is often not the case. In fact, many of them are really just blue-chip stock funds with relatively small distributions. So if you are going to invest in a dividend fund, make sure that you know what you are buying.

If you want income, look for a fund that has a high percentage of preferred shares in the portfolio. These generate more cash flow and have a reduced degree of risk. There are only a few around and one of the best of them, GGOF Monthly Dividend Fund, recently closed its doors to new investors. Of those still available, we recommend the Signature Dividend Fund in our Income Investor newsletter.

For dividend funds that are more oriented to blue-chip common stocks and capital gains, the Phillips, Hager & North Dividend Income Fund is a long-standing recommendation of our Mutual Funds Uate newsletter. Be sure to talk to a financial advisor before you invest in either of these.

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