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Get Income and Growth From Dividend Paying Stock Funds

- Alan Lavine and Gail Liberman

Dividends are what count today. You can own a stock that pays 2 to 3 percent, plus there is an opportunity that the stock price will grow if the company's profits grow.

Mutual funds that invest in dividend paying stock funds typically own undervalued stocks in relation to the company's earnings outlook. This year-to-date funds invest in under priced large company stocks are up about 13 percent. That's not bad considering the dividend yield of the funds averages about 2 percent.

Thanks to the new tax laws investors will only pay 15 percent income tax on their stock fund's dividends. In the income was tax as ordinary income based on your tax bracket.

Some of the best rated large company value funds include American Century Large Cap Value Fund, Clipper Fund, American Funds Washington Mutual Fund, MFS Value Fund, T.Rowe Price Equity Income Fund, and Van Kampen Growth and Income Fund, according to Morningstar.

Investors now have a new dividend paying stock fund to consider. Read the fund's prospectus and watch how it performs compared to similar funds. The fund managed Waddell & Reed, Overland Park, one of the oldest mutual fund groups in the country. The fund group has a reputation of managing solid funds. For example, most of Waddell & Reeds existing stock funds all carry above average ratings from Moringstar over the past three years.

The Waddell & Reed Advisors Dividend Income Fund seeks to provide income and long-term capital growth by investing primarily in dividend-paying common stocks that show strong prospects for long-term growth. The fund is designed for investors seeking both income and long-term capital growth.

David Ginther, fund manager, says the new fund is expected to take advantage of the increasingly favorable climate for dividend-oriented investments, characterized by an increase in the number of dividend-paying companies, the increase in overall yield of the S&P 500 index, and the recently enacted Federal tax reduction on qualified dividend income.

The fund, under normal conditions, will invest at least 80 percent of their assets in dividend-paying equity securities in companies that should grow their earnings better than their competitors over the long term. The focus will be on financially strong companies with dividends that the manager believes to be attractive. The fund will seek to avoid investments in companies that pay higher-then-average dividends, but may not possess strong overall financial characteristics.

The fund will invest primarily in large companies based in the United States, but may also invest in companies of any size, and up to 25 percent in foreign companies.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).

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