For investors seeking escape from the interest rate famine, Vanguard and Fidelity are offering two large-cap mutual funds that serve up a delightful combination of dividends and growth. Vanguard Dividend Growth Fund (VDIGX) and Fidelity Growth & Income Fund (FGRIX) focus on stocks which capture both critical ingredients for growing your long term nest egg.
Vanguard Dividend Growth is capably managed by Don Kilbride of Wellington Management, and has a concentrated focus. This $15.5-billion fund currently owns about 50 stocks and seeks out companies with solid fundamental underpinnings. Companies that are part of this portfolio have the ability to increase dividends over time, and are not simply firms that feature the highest dividend yields. This leads the fund to hold solid stocks that achieve a fine balance between growth and returning money to shareholders in the form of dividends.
A good illustration of this balance is how well the fund held up in during the market hemorrhage of 2008. The fund lost a little more than 25% in this challenging year, far less than the 37% loss of the S&P 500. Morningstar ranks this fund in the top 11% of all funds in its category over the last 5-year period, and the fund is up a solid 24% over the past year. As is typical with funds from Vanguard, expenses are rock bottom at .29%. Top current holdings include: Microsoft (MSFT), McDonald’s (MCD), Johnson & Johnson (JNJ), United Parcel Service (UPS) and Roche Holding AG (ROG).
Manager Matthew Fruhan took the reins of Fidelity Growth & Income in 2011, and has moved the fund in a very positive direction. In fact, I think he is one of the top stock pickers in the Fidelity family. This $6.7 billion fund has most of its assets currently in the financial services and technology sectors.
Solid stock picking has pushed this fund up 30% in the past year — it now ranks in the top 18% of its category by Morningstar. The fund holds 193 stocks currently and sports a reasonable expense ratio of .71%. Current top holdings include: JPMorgan Chase (JPM), Apple (AAPL), General Electric (GE), Wells Fargo (WFC) and Chevron (CVX).
Investors are drawn to dividend-paying stocks for obvious reasons, but what really counts is the total return achieved over time. It’s easy for investors to reach for yield in this low interest rate environment, but perhaps a focus on total return is the winning long-term strategy.
Combining dividends and dividend growth could be the answer.
As of this writing, Bill Wysor was long VDIGX.