Morningstar Advisor - October/November 2011 - (Page 5)

Letter From the Editor Getting Paid In his 2008 book, The Ultimate Dividend Playbook, Josh Peters writes: “I suspect that one day investors will come back to basics and learn to rely on the income, insight, and independence that dividends provide, rather than capital gains alone. That would mark a real improvement in market efficiency, which in turn couldn’t help but benefit investors, the corporations in which they invest, and our economy in general.” A financial crisis and a recession (or two?) later, investors today seem more willing to consider Peters’ way of thinking. If they haven’t yet, there’s plenty of evidence to suggest that they should. Peters, editor of Morningstar DividendInvestor, and others in this issue make the case that not only does investing in stocks that payout a large amount of dividends offer the best chance for investors to take home some yield today, but also it makes long-term investing sense when real returns of most other investments are zero or below. In “The Virtues of Dividends” (Page 34), Peters makes two big points: high-yielding stocks offer investors the best chance to offset inflation and their total returns routinely outperform low- and no-yield stocks by a wide margin over long time periods. If there’s a secret ingredient, it’s what Morningstar calls “economic moats. “ To offset the risks of buying high-yielding names, Peters says that investors must make sure they’re getting companies with huge competitive advantages, thus ensuring that they can continue to provide shareholders with real yield. Peters won’t consider a stock for the two portfolios he runs for Morningstar DividendInvestor if it doesn’t have a moat. Investors are scouring the world looking for decent income. Many of them are pouring assets into Templeton Global Bond TPINX, the most popular world-bond fund, which manages 40% of the category’s assets. It’s an impressive fund with an excellent risk/ reward profile, so it’s no surprise that it’s attracting a flood of assets. But do these shareholders know what they’re getting into? The fund’s approach is off-beat and one of a kind, analyst Miriam Sjoblom writes in “How Well Do You Know Templeton Global Bond?” (Page 38). And with bets on China’s economy and higher interest rates, the fund seems to be taking its boldest stance yet. Sjoblom warns that investors looking to the fund to provide short-term yield solutions may be in for a rude awakening. Her piece is an excellent case study of why investors should take the time to understand exactly what they’re buying. What holds true for dividend investing in developed markets also applies to emerging countries. Firms in emerging markets that pay dividends offer many attributes that are favorable to investors, analyst Samuel Lee writes in “The Case for Dividends in Emerging Markets (Page 42). He also finds evidence that the “dividend bonus” in emerging markets is frequently mispriced, making emerging markets fertile grounds for hunting for investing opportunities. Please let us know what you think about these articles and others in the magazine. E-mail your feedback to magazine_editor@morningstar.com. Jerry Kerns Follow Jerry on Twitter @ jerrykerns MorningstarAdvisor.com 5 http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2011

Morningstar Advisor - October/November 2011
Contents
Contributors
Letter From the Editor
The Emotional Burden
Where Are You Going for Yield?
Ahead of the Curve
How to Use a ‘Collar’
Why Dividends
Is Bond Investing All Uphill From Here?
Four Picks for the Present
Investment Briefs
The Risks of Stretching for Yield
For Banks, Uncertainty Reigns
The Virtues of Dividends
How Well Do You Know Templeton Global Bond?
The Case for Dividends in Emerging Markets
Finding Refuge in Value
Swift, Smooth, and Silent
Crack Open Closed- End Funds to Avoid the Relevance Paradox
Getting Beyond Labels in the ‘To vs. Through’ Debate
Handling the Headwinds
Bonds, Short-Term Bonds
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
A Prisoner of Pricing

Morningstar Advisor - October/November 2011