Second picking the stocks that have the highest

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Unformatted text preview: r-weighted in financial service, utility and real estate investment trusts (REIT) stocks. While this is not necessarily a negative, investors have to be aware of this fact when they construct these portfolios. As noted earlier in this chapter, different dividend policies attract different clientele. Not surprisingly, investors who buy stocks in high dividend paying sectors tend to view more dividends as a good thing and to reward companies that pay higher dividends. The same cannot be said about investors who buy technology or biotechnology stocks. Why do some sectors pay more in dividends than others? While part of the reason may lie in the history of these sectors, a great deal of the differences in dividend policy can be explained by differences in fundamentals. Sectors with higher growth potential and more volatile earnings tend to pay less in dividends, especially relative to market value. Firms in these sectors often have to reinvest their earnings to grow and are also wary of paying out dividends that t...
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