The Right Way to Jump on the Dividend Bandwagon

If you needed one more reason to pay attention to a fund's expenses, the recent dividend tax cut out of Washington is it.

Dividends are now taxed at a 15% rate, instead of at ordinary income tax rates that used to run as high as 38.6%. But you can only take advantage of this rate reduction if you're actually receiving dividends. And if you own a fund with fat expenses, the dividends will be scarce.

A fund's expenses are deducted from dividends and other types of portfolio income, such as interest, before that money is distributed to shareholders. That means the fees come out of income first. So the more you pay in expenses, the less you'll ultimately receive in dividends. ...