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I am very close to retirement. And have just started to invest.

Uh oh.

I am interested in starting with high-yield dividend funds. Since my needs for income is great.

Most "funds" have a cost of between 2-3% per year. Even great dividend payers are paying between 4-5%, so you are giving up half of your income to the fund managers. (There are a very few stocks paying 6% or better: AT&T and Altria, for instance. But those are exceptions, and not without risk.)

You might want to visit the Dividend Growth Investing board, where such things are discussed. Don't be afraid to page backwards through time, but I wouldn't go more than a year or two back since things do change.

My IRA portfolio is structured to produce income, and includes:

(Stock / Dividend / PE ratio)

Pfizer 4.6% with a P/E of around 18 (that's high)
AT&T 5.9% with a P/E of around 12.5
HJ Heinz 3.8% with a P/E of around 16
Alliant Energy 4.5% with a P/E of around 12.5
Campbell Soup 3.1% with a P/E of around 14
Chevron 3.6% with a P/E of around 9
Clorox 3.6% with a P/E of around 15
Coca Cola 3% with a P/E of around 17
Con Edison 4.9% with a P/E of around 14
*Dow Chemical 2.6% with a P/E of around 15.5
Dupont 3.6% with a P/E of around 14.5
Duke Energy 5.6% with a P/E of around 13 (about to merge)
GE 2.8% with a P/E of around 15
GlaxoSmithKlein 4.8% with a P/E of around 17
*Kimberly Clark 4.2% with a P/E of around 13
Eli Lilly 5.3% with a P/E of around 8.3
*McDonald's 3.1% with a P/E of around 16.5
Mercury General 5.4% with a P/E of around 15
Piedmont Natural Gas 3.8% with a P/E of around 19
Kraft Foods 3.7% with a P/E of around 15

*(I will note that I bought these a year ago, and a few of them have over $100,000 in combined 'profits' and are now in the 'sell' category, for me (See Mike Klein's charts explanation, below). Except I'm having trouble figuring out what to buy instead, so I'm going through the process all over again. At the time I bought them I refused to consider any financial companies/banks because of the financial crisis. I might allow them in, now.)

I can buy and sell with impunity from taxes in this account because it is an IRA. We have other investments in our regular joint account, and those are structured for growth, rather than dividends. They include non-dividend payers like Berkshire Hathaway, as well as stocks we have held for a very very long time (on which we have significant gains) and which are still OK, so we hold them rather than sell and pay the taxes on them. Those would include Johnson & Johnson, Walgreens, WalMart and a few others. While those pay dividends, they are smaller and don't really impact us at tax time.

In the IRA I have about 20 stocks, each bought with about 50k. I have so many to minimize risk; when GE went in the dumper the stock price dropped (ouch) and the dividend was cut (double ouch) but because it was only 5% of that portfolio the effect was quite small. Spreading risk - especially at retirement time - is crucial. Note: buying 20 good paying energy companies is not "spreading risk" because if the whole sector goes in the crapper, they all go down at once, capiche? (Think if you had bought a whole bunch of financials for their dividends in 2007, get it?)

I go through a less-than-rigorous selection process. (I used to do a lot more, but the reality is that I'm not going to read every footnote on Page 342 of a company's annual report, nor do I trust them to tell me everything anyway.) So I use a screener for dividends. Schwab has a simple one in their "Research" section, you can find them elsewhere, including on the BMW Board where they regularly post "Dividend Achievers" and "Dividend Aristocrats", companies which have a habit of increasing dividends year after year, an indication that management is righteously protective of their dividend stream. [Didn't stop GE from from slashing it, but life happens, eh?] An example:

After I come up with good dividend candidates, I pull a Value Line report on each of them. A quarterly on-line subscription is cheap, and contains a wealth of information all neatly packed into one page. It gives the Value Line ratings for "Timeliness", "Safety", and "Technical". Of particular importance is "Safety", obviously. You can get free ValueLine reports on the Dow 30, so print a couple to get familiar with them, assuming you're following so far:

Finally, I use Mike Klein's [free] charts (originated from the BMW board, I believe).
The methodology seems complicated, but the theory is simple. People buy stocks of companies which are profitable. They pay more for companies which are more profitable, and if you chart the company's profits against the stock price, you will see that the general trend is that as a company becomes more profitable, the stock price increases too. But like the daily temperature reading, there are "wobbles" all over the place. In Summer the temperature gets generally warmer, but that doesn't mean that every day is warmer. Hence the wobbles in Mike's charts: sometimes stocks become "more popular" (like Apple, right now) and sometimes less popular (like, well BP after the oil spill.) If you can buy a company which is under the growth line - and can explain why and think it will come back - then that is a good stock to buy. Companies go through cycles. You want to catch them during a bad cycle, but make sure they're going to have a good one again. McDonald's went in the dumper a few years ago, then came back strongly.

The time to buy Apple was 5 years ago, probably not now. The time to buy gold was a few years ago. In a funny way, it's like Beanie Babies: there is a period of "too much popularity" followed by a period of "not much." You want to get stocks before they become "too popular", otherwise you are overpaying.

If you buy an overheated stock, even with a good dividend, you will make 5% on the dividend and lose 10% on the stock price: not such a good play. Obviously there are times when the lines don't mean anything: new companies (the shortest duration for Mike's charts is 17 years, and most are longer). Also companies in industries where things are rapidly changing. You didn't want to buy Kodak when digital photography was coming out, no matter how great their profits, because with a little thought you could see that they were going to get creamed. Likewise Barnes & Noble today (e-books), likewise the music companies, likewise, well, you get the idea. You have to apply your brain and common sense to the numbers, but after all of that you should come up with a selection of reasonable candidates.

Finally, I'll say there are "funds" called "ETFs" (Exchange Traded Funds) which act sort of like a mutual fund, except the costs are much much lower. They are basically a "basket" of stocks which mirror one particular segment depending on how they are structured. It could be "Chinese companies" or "drug companies" or "energy companies" or "foreign currencies" or even "dividend paying stocks" or whatever. That spreads the risk, but also includes some dogs, since the fund managers are not paid handsomely to buy lots of research. Some people swear by them. I don't, but maybe that's just me. Ask around about them.

Last, beware of your "costs." Going through a high-priced broker will severely crimp your returns. If you put $500 in and he takes $75 just to make the trade, you're a lot worse off then going with Schwab or Ameritrade or whoever at $9 a shot. Mutual funds have lots of fees, so read the prospectus carefully. They like to break them up and say "1%" but say it in 3 different places, so it's really 3%. Beware.

Time for you to bone up and do some studying. It's never too late, and you can't get a lot of experience quickly, but you can learn from folks here at the Fool. Good luck.
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