My Short Answer column on Tuesday surveyed the landscape of dividend-focused investing, including high-yielding stocks and dividend-oriented mutual funds. On the stock side, I pointed out some of the risks of stocks with very high dividend yields and the importance of doing research to figure out whether a company's dividend is sustainable and likely to grow. Of course, I couldn't mention everything, and a few readers have written to ask why I didn't specifically mention payout ratio (the percentage of a firm's earnings that it pays out as dividends) or dividend growth rates. Indeed, those are both important measures for any dividend investor to be aware of. You can read more about them in my colleague Josh Peters' online columns, such as this one and this one. Josh's DividendInvestor newsletter and his book, The Ultimate Dividend Playbook, have even more details and examples.

On the fund side I gave plenty of examples, including both funds that aim for a high dividend yield per se, and those that hold dividend-paying stocks but aim for good long-term total returns rather than yield for its own sake. One reader suggested that I should have mentioned Alpine Dynamic Dividend (ADVDX), which makes a dividend distribution every month and has a yield north of 15%, with an emphasis on qualified dividends (those subject to the lower 15% tax rate). Morningstar doesn't actively cover this fund right now, but based on our earlier analyses and the current portfolio, this appears to be a decent option for fund investors who want yield above all else. However, it does come with quite a bit of risk, as shown by its terrible performance this year, when it has trailed 96% of the mid-cap blend category.

Are there other dividend-oriented mutual funds or ETFs that you like?  Maybe a hidden gem that doesn't get as much attention as the T. Rowe Price and Vanguard funds mentioned in my article?  Let's get a discussion going.

David Kathman

Morningstar