by Tom Taulli | April 17, 2012 6:30 am
Interest rates are at rock-bottom levels, and 10-year Treasuries are yielding just a paltry 2%. So needless to say, despite the lackluster first quarter defensive stocks had, there’s still plenty of demand for dividend-paying stocks.
Besides, these types of investments can be fairly stable — something investors are sure to seek out considering the markets’ recent volatility.
There’s a number of ways to go after income, including mutual funds that are focused on dividends. But do not expect huge payouts. Keep in mind that mutual fund portfolio managers often focus on high-quality companies, which means the valuations can be at premium levels — which usually translates into lower yields.
But for investors looking for a nice, steady income check coming from groups of rock-solid payers, here are 4 top dividend funds to buy now:
The Vanguard Dividend Growth Fund (MUTF:VDIGX) has posted a sterling 18% average annual return for the past three years. Of course, that’s what you should expect from portfolio manager Don Kilbride, a top-notch value investor.
Kilbride tends to focus on big-cap companies that have strong barriers to entry and huge cash flows. These are the kinds of investments that tend to do fine in any environment. Top holdings include ADP (NYSE:ADP), PepsiCo (NYSE:PEP) and Occidental Petroleum (NYSE:OXY).
While VDIGX’s holdings might not generate exorbitant dividend rates, the distributions tend to be stable. The current yield is about 1.9%, and VDIGX also has a low 0.31% expense ratio.
The Columbia Dividend Income (MUTF:LBSAX) fund has proven to be a steady performer. During the financial crisis of 2008, the fund lost 27.97% — which sounds bad, but that’s 9 percentage points better than the S&P 500’s performance. LBSAX also was able to deal with the extreme volatility of the European crisis. Last year, the Columbia fund posted a return of 6.77%.
The portfolio managers — Dick Dahlberg, Scott Davis, and Mike Barclay — have a strong discipline for investing in companies that have rock-solid cash flow generation. Ultimately, the result should be growing dividend payments.
Some of the top holdings include Philip Morris International (NYSE:PM), IBM (NYSE:IBM) and AT&T (NYSE:T), and expenses are 1.03%.
Utilities might not be exciting, but they often produce juicy dividends. A way to leverage this through a mutual fund is the MFS Utilities A (MUTF:MMUFX) fund, which has a current yield of 3.22%.
Maura Shaughnessy has managed the fund for the past 20 years, and her performance has stood out. Her MMUFX’s average annual return for the past 15 years is 10.5%.
A key part of Shaughnessy’s success is that she is willing to go beyond traditional utilities. For example, she has holdings in telecom, energy, media and cable companies, and she also ventures into foreign markets. MMUFX’s expense fee is 1.04%.
While Asian markets offer huge growth potential, they come at the risk of increased volatility. But one way to find more stability is by investing in a mutual fund that emphasizes ongoing dividends. This is the approach of the Matthews Asia Dividend Investor (MUTF:MAPIX) fund, which has $2.7 billion in assets and a current yield of 2.33%.
The fund has a flexible approach, and will invest in riskier countries like Indonesia and Malaysia, as well as buy small-cap stocks.
The Matthews fund also takes a long-term approach; the portfolio’s turnover rate is just 16.5%. Not surprising, given MAPIX’s 8% average annual returns in the past five years. That comes at an expense ratio of 1.1%.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
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