New "Active" Dividend Fund Capitalizes On Tax Laws

by Alan Lavine and Gail Liberman

In this day and age of low interest rates and rising stock prices, analysts say stock dividends look good. But the trick is to find high dividend-yielding stocks issued by solid companies.

The dividend yield on the S&P 500, an index of the 500 largest companies traded on the New York Stock Exchange, is 2 percent. But stocks that have been knocked down in price pay higher yielding dividends. Or you can find companies that are raising their dividends.

Well-seasoned large companies pass on about 50 percent of their profits to shareholders in the form of dividends. So you can talk to your financial advisor about setting up a group of stock holdings that will pay you a dividend a month.

Another option: You can invest in a mutual fund that invests in dividend paying stocks. Morningstar, a Chicago-based research firm, gives the Franklin Rising Dividend Fund and The T. Rowe Price Equity Income funds high ratings.

But these funds are not your only options. Alpine Management & Research recently has introduced a unique dividend-paying fund that it claims is more active than many new offerings designed to take advantage of the latest tax laws favoring qualified dividends.

The new no-load Alpine Dynamic Dividend Fund is specifically designed to capture dividends paid by domestic and foreign companies that qualify for the reduced 15 percent federal tax made available under the Jobs and Growth Relief Reconciliation Act of 2003. Its focus is mid-cap and large-cap stocks.

One thing Alpine’s fund hopes to do is trade around a company’s ex-dividend date using the 61-day holding period required to take advantage of new federal tax rates. The ex-dividend date is the interval between the announcement and payment of a stock dividend. An investor who buys shares during that interval is not entitled to the announced stock dividend.

The new $1,000-minimum fund is designed to provide a high level of income and appreciation at the same time, according to portfolio manager Jill Evans, the funds manager, is investing a portion of its fund in traditional high-yield stocks such as utilities and financial institutions. She also plans to seek out companies more “interesting plays,” designed to provide value.  The stock evaluation is based on earnings growth, cash flow and the company’s dividend payment history.

Currently, the fund yields 5.5 percent.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "The Complete Idiot's Guide to Making Money with Mutual Funds," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show.

More articles by Al and Gail can be found here.