7% yield comes with questions

Posted by D4L | Sunday, November 28, 2010 | | 0 comments »

Rule One of conservative investing: In a 2- to 4-per-cent world, you can’t get 7 per cent without taking on some extra risk. Rule Two is that some investors will forget Rule One and end up hurting themselves.

So let’s have a lesson on the risks of trying to do better than bonds, guaranteed investment certificates and blue-chip dividend stocks using a real-life product called Dividend Select 15. It’s a closed-end fund. Dividend Select 15 holds 15 stocks drawn from a master list of 20 high-yielding, true blue-chip names. Ms. Payne noted that the fund will use only a limited amount of covered call writing. But at today’s volatility levels, she said, the fund could probably generate more income through this strategy than it actually needs to maintain the 7-per-cent yield.

Source: Globe and Mail

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