Dividend investments have grown dramatically over the past year but investors need to be aware of the risks, according to Thomas Forsha.

Mr Forsha, vice president of American investment management company River Road Asset Management, was speaking at the Morningstar Investment Conference today, replacing his colleague Andrew Beck.

Some 16 new dividend funds have been launched over the past year and assets under management in dividend focused strategies have increased by 18 per cent.

Mr Forsha said dividend investments were attractive as they often outperform non-dividend payers, require real earnings from a company, currently receive favourable tax treatment and favour income-orientated investments.

But he said riskier companies had started to offer dividend payments which were not always a good idea for investment and investors should be cautious about funds offering extremely high yields.

“Attractive dividends do not always make an attractive investment. They may have high yield but you have to have a company that can support that yield otherwise it is a very risky investment.”

If an investor was considering investing in dividend investments, Mr Forsha said there were numerous factors to consider.

“You have to check if the fund is well diversified, does it compromise fundamental value for exceptional high yield,

does it raise dividend regularly, does it have a sustainable payout ratio and is it a financial strong company?”

Nevertheless Mr Forsha ended his speech by stating that dividend investments still remained an attractive long-term investments but that investors had to remain very very cautious about the fundamentals of the investment and research what was driving the investment yield.