These mutual funds invest in stocks that pay dividends.
High-dividend mutual funds are a popular choice among people seeking to receive current income on their investments. “In good economic times, dividends tend to have higher yields than interest-bearing bonds,” says Stuart Michelson, a finance professor at Stetson University in DeLand, Florida. One drawback of these funds is that the dividends are taxed as ordinary income, but socking away these investments in an individual retirement account or 401(k) plan will provide a tax shelter on the income until the investor retires. Although dividends reap rewards and boost returns, not all mutual funds which include high dividends are created equally. Here are seven high-dividend mutual funds to consider for your portfolio.
MP 63 Fund (ticker: DRIPX)
The MP 63 Fund is a potential option for investors looking for a dividend growth fund. The actively managed no-load fund seeks to invest in a diversified portfolio of high-quality, dividend-paying companies that offer dividend reinvestment plans, known as DRIPs, says Evan Kulak, co-founder of Polaris Portfolios. At the time of this writing, DRIPX carries a four-star rating from Morningstar and a gold analyst rating. At the time of this writing, the fund’s holdings include 26 “dividend aristocrats,” companies in the S&P 500 index that have increased dividend payments annually for the last 25 years. The fund has a trailing 12-month yield of 1.75% and a below category expense ratio of 0.79%.
10-year return: 13.93%
Fidelity Equity Income Fund (FEQIX)
The Fidelity Equity Income Fund is a diversified domestic equity fund strategy that seeks a yield that exceeds the benchmark S&P 500 index’s yield. The fund has managed to keep pace with the performance of its index while offering investors a trailing 12-month yield of 2.21%, Kulak says. The fund has an expense ratio of 0.61%. The top four sectors in the fund are financials, health care, information technology and energy; the top 10 holdings include Cisco Systems (CSCO), JPMorgan Chase & Co. (JPM) and Johnson & Johnson (JNJ). Ramona Persaud has been the portfolio manager since October 2011, and there is no minimum investment.
10-year return: 12.42%
Vanguard International High Dividend Yield Index Fund (VIHIX)
The Vanguard International High Dividend Yield Index Fund is an income-focused fund that offers a way to include exposure to international companies, which are forecasted to have higher-than-average dividend yields. The fund focuses on companies that grow slowly. This fund’s expense ratio is only 0.32% with reasonable returns, but has a higher risk due to international investments, Michelson says. The fund invests in international companies like Royal Dutch Shell (RDS,A) and has exposure to both developed and emerging firms. Michelson adds that his fund is a good addition to a portfolio, saying high-dividend stocks and mutual funds often tend to be better choices for retired investors who require current income.
3-year return: 7.49%
Vanguard High Dividend Yield Index Fund (VHDYX)
The Admiral Shares are open to new investors with a $3,000 minimum contribution. VHDYX is a passively managed index fund that tracks the FTSE High Dividend Yield Index, and its holding include JPMorgan Chase, Exxon Mobil Corp. (XOM), Procter & Gamble Co. (PG) and Cisco Systems (CSCO). Since this fund tracks a broad benchmark, it is very diversified. The fund’s emphasis is on income, resulting in growth rates not being as high as the general stock market during a bull market, Michelson says. The expense ratio is very low at 0.14%. The fund is rated at moderate to aggressive risk and is appropriate for investors with longer investment horizons.
10-year return: 14.68%
Fidelity Dividend Growth Fund (FDGFX)
FDGFX is a large-cap diversified domestic equity fund and invests in higher quality stocks. Gordon Scott began managing the portfolio in April 2017, although FDGFX is more than 25 years old. FDGFX returned 11.73% for the three months ending on March 31, trailing the 13.65% return of the benchmark S&P 500 index. The decline in returns was the result of FDGFX’s “stock selection and a large overweighting in the underperforming financials sector detracted from performance,” Scott wrote in his quarterly fund review published in March. “A large underweighting in the market-leading information technology sector also hurt.” The fund’s top holdings include Berkshire Hathaway (BRK.A, BRK.B) and General Electric Co. (GE).
10-year return: 14.3%
Vanguard Equity Income Fund Investor Shares (VEIPX)
The Vanguard Equity Income Fund focuses on slower growing, high-yielding stocks. This fund falls within Morningstar’s large value category which tend to focus on large-cap stocks that may be undervalued. Many of the fund’s holdings are stocks that pay dividends and the fund’s yield may be higher than that of other Vanguard stock funds. The fund’s expense ratio is 0.27%, which is categorized as low for funds in this category by Morningstar. The fund requires a minimum initial purchase of $3,000. The top sectors in the fund include communication services, consumer discretionary, consumer staples and energy, and the top 10 stocks include JPMorgan Chase and Verizon Communications (VZ).
10-year return: 14.78%
T. Rowe Price Dividend Growth Fund (PRDGX)
The T. Rowe Price Dividend Growth Fund is a large-cap blend fund that received five stars from Morningstar, the highest number, for the overall, three-year and five-year categories, out of more than 1,200 funds. The expense ratio is 0.64%, and the fund has most of its holdings in U.S. companies with only 2.6% in foreign stocks. The risk for the fund is moderate and has been managed by portfolio manager Thomas Huber since 2000. The fund’s top 10 holdings are Microsoft Corp. (MSFT), Visa (V) and JPMorgan Chase, while the top sectors include health care, information technology, financials and industrials and business services.
10-year return: 14.57%
Best high-dividend mutual funds to buy in 2019.
— MP 63 Fund (DRIPX)
— Fidelity Equity Income Fund (FEQIX)
— Vanguard International High Dividend Yield Index Fund (VIHIX)
— Vanguard High Dividend Yield Index Fund (VHDYX)
— Fidelity Dividend Growth Fund (FDGFX)
— Vanguard Equity Income Fund Investor Shares (VEIPX)
— T. Rowe Price Dividend Growth Fund (PRDGX)
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