Buy good solid companies that pay dividends, that's the topic in the news today. We don't disagree with the strategy; as many of you know we support it through our investment solutions. However, when the strategy is discussed, some points are missed, so we would like to cover some of the points that get left out. In the end we feel dividend stocks are just another way to evaluate a stock and you need to look at the total return, not just the dividend yield.

Here are some thoughts on the other side of the dividend strategy:

1. When a dividend is paid the value of the stock is reduced by the amount of the dividend, the same as making a withdrawal from a fund.
2. Some investors are satisfied if the stock price goes down as long as they received a dividend. Those same investors are often not as satisfied when they withdraw money from a fund and the fund goes down. There is no difference, it is the same thing with one exception: With a fund you decide when to take the income.
3. Are the dividends being reinvested back into the stock? It's easy to reinvest with a fund.
4. Dividends don't come from profit, they come from cash flow and sometimes a business has to borrow to meet cash flow demands. Just because a company pays a dividend doesn't mean there is no risk.
5. Generally, the higher the dividend yield the riskier the investment. Sometimes it is hard to picture this with stocks but think of money being lent. Generally the higher the interest rate being charged, the riskier the loan. It's the same thing with stocks. Companies don't just give money away. They raise money by selling stock to investors. If company A is riskier than company B and both pay the same dividend, which company stock would you buy? "B". So A has to pay a higher dividend to entice you to buy its' stock.
6. Dividends received are 100% taxable whereas a withdrawal from a fund is only taxable on the gain.
7. If you are over 65 the dividend gross up may cause you to lose some of your OAS.