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Finding Stock Funds with Big Yields

And why you'd want to own a fund that pays dividends.

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Let's talk dividends.

It would be a stretch, certainly, to say that dividend-paying stocks have caught fire. But they've definitely warmed up since the late 1990s, when they were routinely dismissed as a quaint relic of the old economy.

The Case for Dividends
So, what has changed? First and foremost, the bear market served painful notice that supercharged growth forecasts--which abounded during the runup--aren't always realized. Through that experience, many chastened investors have come to appreciate the dependability of slower, steadier businesses--the kind that typically pay dividends. Second, in May 2003, Congress slashed the tax rate on dividends to 15%. That burnished the luster of dividend-paying stocks, which had formerly been taxed at more-punitive, ordinary income levels. Finally, there's safety in numbers: More and more public companies have been paying out dividends. The decision from  Microsoft (MSFT) to pay regular dividends, plus its monster one-time $3 special dividend in November 2004, was probably the most noteworthy, but it was hardly unique.

Todd Trubey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.