Focusing your portfolio by paying dividend stocks

Individual investors more to engage in a form any active management, where their broker attempts to beat the markets. To justify their expertise, brokers have different strategies, they believe that will help them achieve this goal. These are going to invest in commodities for overweighting your portfolio in a class of assets, in particular, as the CAP major stocks or stocks of emerging market. A popular strategy invests in companies offering dividends.

Proponents of this strategy all its advantages: the regular receipt of dividends payments effectively reduces the price you paid for the shares. Dividends are paid in these two bull and bear markets. Dividend paying companies management is also supposed to be more cautious because of the need to have money to pay dividends.

Unfortunately, no active management strategy has peer review data to back up. Overweighting your portfolio by paying dividend stocks is doing no better. By limiting your portfolio of stocks pay dividends, you deprive you yields associated companies do paid no dividend at a given time, but do it now, according to an analysis by Weston Wellington, vice President of Dimensional Fund Advisors. Wellington has watched the price of the initial offer of five stocks initially only paid no dividend:

-Cisco (Denver)

-Kohl (KSS)

-Oracle (ORCL)

-St. Jude Medical (STJ)

-Starbucks (SBUX)

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Each of these companies had huge appreciation in value of the date of their initial public offering so far. For example, the purchase of 100 shares of St. Jude Medical on February 9, 1977 at $3.50 per share was $ 1 million from $ April 8, 2011. Now, each of these companies pay a dividend, which in addition rewards those who invested in their forward start dividends and had the patience to stick with them. St. Jude has not paid its initial dividend until March 29, 2011, nearly 34 years after its initial public offering.

Conversely, just because a stock pays a dividend, does not mean that it is a good investment. Wellington noted that Eastman Kodak has paid dividends since 1902, Kmart since 1913 and Dana Corp. since 1936. Stocks of these three companies are distinguished for special praise in the book, In Search of Excellence - lessons learned from Best-Run Business America, by Thomas Peters and Robert Waterman Jr. Dividends nor praise contributed to investors. Kmart and Dana filed its balance sheet. Kodak eliminated its dividend in cash in 2009 and its stock price fell by more than 90 percent since the end of 1990.

[See 5 Secrets to choose a good investment.]

Brokers take advantage of your lack of knowledge of the data when they propose their active management strategies. It is a rare investor who insists to see long-term, peer and academic data before making an investment decision. If your broker is recommend anything else to invest in a diversified portfolio global index funds fees management low in a distribution of assets for you, ask the underlying data. Remember to compare these data with the data showing the performance of a portfolio of index comparable long-term. The chances are that you will see a rapid retreat.

Dan Solin is a senior vice president of index funds advisors. He is the author of the New York Times best sellers The Smartest investment book you'll ever read, The Smartest 401 book you'll never read and The Smartest retirement book you'll never read. His new book, the Smartest portfolio you ever own, will be released in September 2011.