Kevin Kroskey In The Press: On Dividends

I was recently interviewed by Financial Advisor magazine, a leading industry publication, for contributions to a story about dividend investing after the author had read an article I wrote in June of 2011 entitled "Should Investors Favor High Dividend-Paying Stocks?" It was certainly nice to be interviewed and receive compliments for what was described as a well-written article by a senior editor of the magazine. He wrote:

Kevin Kroskey, president of True Wealth Design, a financial planning firm in Akron, Ohio, says he doesn’t use any dividend-focused funds because they’re typically value-weighted, large-cap portfolios heavy on the consumer defensive, utility and communication services sectors.

“You’re forsaking diversification if you rely on a dividend-paying strategy,” Kroskey says. “It’s not that I don’t like dividend yield. It’s just lower on the criteria list after cost, diversification and how the fund does or does not fit into my asset-class level modeling.”

Kroskey says he invests for income by focusing on a client’s cash-flow needs. For time horizons between five and 12 years, he’ll use individual, taxable municipal bonds and match a client’s expected liabilities with the interest and principal repayments from these bonds. For less than five years, Kroskey uses cash and shorter-term, high-quality bond funds—typically with a duration of about two or three years. “I’m not concerned about the interest rate risk in the short term on these funds,” he says.

I was misquoted in the first paragraph, but those sorts of details aren't that important, right? What I actually said was dividend-focused strategies do have an over-allocation to just a few sectors and often just a few handfuls of companies. So in an effort to reach for more yield, a few concentrated bets are made.

It's interesting to note that only about 25% of US companies in the last year paid dividends. Does it make sense to ignore 75% of the market? I certainly think not.

Kevin Kroskey, CFP, MBA