San Francisco, June 18, 2013 (GLOBE NEWSWIRE) -- While investors may assume that dividend investing is relatively straightforward, they commonly make mistakes that undercut the potential income and total return of their investments, says a new study by Forward (Forward Management, LLC) "How Not to Invest in Dividend Stocks."
"With more than 10,000 Americans turning 65 each day and bond yields near historical lows, dividend stocks are on the radar of many advisors and investors," said Forward CEO Alan Reid. "To be successful, however, investors need to understand the many ways in which dividend strategies may vary, and how much these differences can affect their long-term results."
The research paper identifies and elaborates on seven key mistakes it recommends that investors avoid:
1) Chasing lofty yields. "Counterintuitive, as it may seem, stocks with the highest dividend yields may not generate the best overall performance, as very high dividends are often unsustainable and may leave companies short of funds to invest in their future growth," said David Ruff, author of the study and head of Forward's Dividend Signal Strategy™ portfolio team. The study advises investors to consider dividend payout ratios as well as yields.
2) Relying on overly mechanical strategies. Quantitatively-driven strategies risk overlooking fundamental shifts or dividend policy changes that could jeopardize dividend income streams.
3) Overlooking growth factors. Rather than focusing solely on the dividend yields of stocks, investors should also consider their potential for dividend growth and capital appreciation, the study advises.
4) Succumbing to home market bias. Average dividend yields are higher overseas, while stock valuations tend to be more favorable.
5) Having blue-chip tunnel vision. While investors may feel safer with well known large-cap dividend stocks, they have become expensive and over the last decade have produced lower total returns than small- and mid-cap dividend payers.
6) Following the herd. Many dividend funds are index-driven, which can lead to "benchmark-hugging" portfolios that are overexposed to large-cap names while neglecting small- and mid-cap stocks with greater performance potential.
7) Giving macro factors too much weight. While investors may be justifiably wary of risks in emerging markets or the troubled nations of Europe, these regions may still hold attractive companies that have a global revenue base or local-serving operations less likely to be affected by macro trends.
Forward offers a suite of dividend funds that employ the firm's proprietary Dividend Signal Strategy method. The strategy is based on research indicating that a company's dividend characteristics can provide a signal of its potential for capital appreciation. Managed by Forward's Dividend Signal Strategy team, the funds include international, emerging markets and global strategies. These strategies are also incorporated in the firm's suite of asset allocation funds and in Forward Income Builder Fund, a multi-asset approach designed for income-focused investors.
About Forward
The world has changed, leading investors to seek new strategies
that better fit an evolving global climate. Forward's investment
solutions are built around the outcomes we believe investors need
to be pursuing - non-correlated return, investment income, global
exposure and diversification. With a propensity for unbounded
thinking, we focus especially on developing innovative alternative
strategies that may help investors build all-weather portfolios. An
independent, privately held firm founded in 1998, Forward (Forward
Management, LLC) is the advisor to the Forward Funds. As of March
31, 2013, we manage more than $6.1 billion in a diverse product set
offered to individual investors, financial advisors and
institutions.
You should consider the investment objectives, risks,
charges and expenses of the Forward Funds carefully before
investing. A prospectus with this and other information may be
obtained by calling
(800) 999-6809 or by downloading one from www.forwardinvesting.com.
It should be read carefully before investing.
RISKS
There are risks involved with investing, including loss of principal. Past performance does not guarantee future results, share prices will fluctuate and you may have a gain or loss when you redeem shares.
Each allocation fund is a fund of funds, which invest in a mix of underlying Forward Funds. Shareholders of an allocation fund indirectly bear the expenses of the underlying funds. An allocation fund's allocations may be changed at any time. Asset allocation does not assure profit or protect against risk.
Borrowing for investment purposes creates leverage, which can increase the risk and volatility of a fund.
Concentration in a particular industry will involve a greater degree of risk than a more diversified portfolio.
Derivative instruments involve risks different from those associated with investing directly in securities and may cause, among other things, increased volatility and transaction costs or a fund to lose more than the amount invested.
Investing in exchange-traded funds (ETFs) will subject a fund to substantially the same risks as those associated with the direct ownership of the securities or other property held by the ETFs.
Foreign securities, especially emerging or frontier markets, will involve additional risks including exchange rate fluctuations, social and political instability, less liquidity, greater volatility and less regulation.
Investing in lower-rated ("high yield") debt securities involves special risks in addition to those associated with investments in higher-rated debt securities, including a high degree of credit risk.
Mortgage and asset-backed securities are debt instruments that are secured by interests in pools of mortgage loans or other financial instruments. Mortgage-backed securities are subject to, among other things, prepayment and extension risks.
Investing in a non-diversified fund involves the risk of greater price fluctuation than a more diversified portfolio.
Investing in the real estate industry or in real estate-related securities involves the risks associated with direct ownership of real estate which include, among other things, changes in economic conditions (e.g., interest rates), the macro real estate development market, government intervention (e.g., property taxes) or environmental disasters. These risks may also affect the value of equities that service the real estate sector.
Short selling involves additional investment risks and transaction costs, and creates leverage, which can increase the risk and volatility of a fund.
Alternative strategies typically are subject to increased risk and loss of principal. Consequently, investments such as mutual funds which focus on alternative strategies are not suitable for all investors.
There is no guarantee the companies in our portfolio will continue to pay dividends.
A blue chip is a nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services.
Dividend Signal Strategy is a trademark of Forward Management, LLC.
Alan Reid is a registered representative of Forward Securities, LLC.
David Ruff is a registered representative of ALPS Distributors, Inc.
Forward Funds are distributed by Forward Securities, LLC.
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