From the August 2007 issue of Boomer Market Advisor • Subscribe!

Dividends make for a win-win-win situation with boomer clients

Solid corporate profits and continued global economic growth mean good times for dividend-generating investments. One fund in particular, the Templeton Income Fund, has posted solid returns in the two years since its inception. With $715.8 million in total assets, the fund is designed to meet the needs of income-oriented investors through global growth opportunities. We spoke with Lisa Myers, co-portfolio manager, about the dividend environment and how boomers, specifically, can benefit.

Boomer Market Advisor: Since you're a global fund, do you have a "go anywhere, look anywhere" investment mandate?

Lisa Myers: We can go anywhere, invest anywhere. There are no restrictions, and as a result, no single focus in any one area. I know it sounds pedantic but we're highly diversified. The fund seeks to generate income and capital appreciation by investing in debt and equity securities all over the globe. Our equity component is generally comprised of dividend-yielding stocks on an approved list.

BMA: And the fixed component?

LM: Our fixed manager, Michael Hasensatb, is great to work with and we share a lot of information back and forth. On the fixed income side, he primarily looks to both developed and developing country government and agency bonds, as well as investment grade and less than investment grade corporate and emerging market debt securities.

BMA: We've heard a lot about the resurgence of dividends in recent years. Is the market still strong for them?

LM: It's a good environment for dividends. U.S. companies, in particular, have been trading at historically high freecash flow yields.

BMA: If it's so good, why are so many companies keeping the purse stings tight when it comes to dividend payments?

LM: I don't think it's fair to say that companies are keeping the purse strings tight. Traditionally, there are four directions companies will take with profits. They use them for mergers and acquisitions, organic growth, shareholder dividends and share buybacks. Companies are increasing their dividends; it's just that the payout ratios haven't had to rise in order to get those dollars out.

BMA: Why invest in a fund such as yours?

LM: There are a number of reasons. Historically, income has been an important component of total return for both the fixed income and equity markets. Because we're global and invest in foreign markets, the fund can offer a higher level of income, and recently, we've seen some foreign stock and bond markets offer higher yields than
the U.S. markets. Also, our balanced approach helps lower volatility. Stocks and bonds typically don't move in tandem, so the fund can experience less volatility than an all-equity portfolio.

BMA: Why do income funds like yours make sense, specifically for boomer clients?

LM: When we launched the fund, we knew that people were living longer and that the 50- to 70-year-old segment of the market was the fastest growing segment. They're starting to think, "I might run out of money," so they want to preserve principal and experience relatively low volatility, but they still want to grow their base. We invest in global fixed income and global dividend-paying stocks. By investing in these two classes, we're able to provide this low volatility with capital appreciation and an income stream. For boomers, we call it a win-win-win; good capital growth and income stream without having to draw on principle.

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