Dividend-Paying Funds Find Renewed Popularity

Equity mutual funds that pay dividends are making a comeback among investors who were burned by technology companies and other types of fast-growing stocks that focused mainly on generating profits, the Associated Press reports.
A number of mutual fund giants, including T. Rowe Price, The Vanguard Group and American Funds, are capitalizing on the trend by promoting investments that mainly invest in dividend-paying stocks. These types of funds are especially appealing to conservative investors because many dividend-paying stocks tend to come from high-quality growth companies.
The return of dividend-paying stocks is a sign that more companies are increasingly focusing on corporate governance and steady growth, according to Morningstar analyst Paul Herbert. Last year, the number of companies in the Standard & Poor's 500 that paid dividends rose to 376 from 350 in 2002. Still, the number dividend-paying companies still lags the figure of 469 from 1980. The average dividend income of 26% after 2001 significantly lags average historic dividend income figures of roughly 46%.
Tax law changes enacted last year helped fuel the resurgence in dividends by reducing the tax liability on dividends to 15% from previous rules that taxed dividends as ordinary income.