Creating a Financial Plan
The stock market involves risk, but companies that pay regular dividends have often provided less volatile returns. Also, retirees and other investors who are dependent on income may be finding it harder to come by these days. When bonds aren’t providing much in returns, investors willing to accept more risk might want to add more dividend-paying equities to their portfolios. That’s when dividends can really make a difference.
Companies can choose to pass profits on to shareholders in the form of dividends. The largest, most established companies don’t necessarily need to reinvest profits for growth, so they tend to pay regular dividends as a way to return earnings to their investors. Mutual funds with an equity-income, growth-and-income or balanced objective may hold shares in those dividend-paying companies. When a fund pays dividends, investors could take them in cash, providing a source of income, or they could reinvest those dividends which, when compounded may help build wealth over the long term.
There are many reasons to invest in mutual funds with holdings in companies that pay regular dividends:
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.