7 Best Dividend Mutual Funds to Count On

The best mutual funds for dividends aren't always the ones with the highest yields

Even With Rising Bond Yields, Dividend Stocks Reign Supreme

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The best dividend mutual funds to buy are not always the funds that pay the highest dividends. For investors looking for income, the yield is an important search criterion but there are other factors to consider.

7 Best Dividend Mutual Funds to Count On: $VDIGX $FEQTX ...
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In addition to yield, it’s also smart to look for low expense ratios and to fully understand the mutual fund’s objective and how it fits into your existing portfolio before you buy.

For example, you can find mutual funds that pay dividends higher than 8%, but how much are you paying for that dividend and what market risk are you taking to get that yield?

Dividend funds with the highest yields, if they come along with high expense ratios and with excessive market risk, can ironically reduce your investment income by putting a big dent in your principal.

With a variety of risk parameters and income needs in mind, while keeping expenses reasonably low, we highlight seven of the best dividend funds to buy.

Best Dividend Mutual Funds to Buy: Vanguard Dividend Growth (VDIGX)

Next Page Best Dividend Mutual Funds to Buy: Vanguard Dividend Growth (VDIGX)SEC Yield: 1.88%
Expenses: 0.32%
Minimum Initial Investment: $3,000

If you’re looking to build a portfolio of dividend funds, Vanguard Dividend Growth (VDIGX) can be a smart core holding to build upon.

Rather than buying and holding the highest yielding stocks of today, VDIGX focuses on high-quality companies like United Parcel Service, Inc. (UPS), Microsoft Corporation (MSFT) and Nike Inc (NKE) that can grow their dividends over time.

This long-term focus, combined with a low expense ratio of just 0.32%, has produced annualized returns that have historically beaten the fund’s large blend category peers, as well as the S&P 500.

Best Dividend Mutual Funds to Buy: Vanguard Real Estate Index (VGSIX)

Best Dividend Mutual Funds to Buy: Vanguard Real Estate Index (VGSIX)SEC Yield: 2.46%*
Expenses: 0.26%
Minimum Initial Investment: $3,000

If you want to tap into the income opportunities of the real estate sector, Vanguard Real Estate Index (VGSIX) is one of the best mutual funds on the market to do it.

Although rising interest rates can create headwinds for REITs, a low-interest-rate environment keeps borrowing costs low for home buyers and developers.

VGSIX invests in companies, such as Simon Property Group Inc (SPG), Public Storage (PSA) and Equity Residential (EQR), that purchase office buildings, hotels and other real estate.

*Note: VGSIX pays quarterly dividends. Vanguard does not quote a 30-Day SEC Yield but calculates an effective adjusted yield, which is 2.46% as of April 30.

Best Dividend Mutual Funds to Buy: Fidelity Equity Dividend Income (FEQTX)

Best Dividend Mutual Funds to Buy: Fidelity Equity Dividend Income (FEQTX)SEC Yield: 2.53%
Expenses: 0.66%
Minimum Initial Investment: $2,500

If you want a solid, actively managed fund that concentrates on large-cap value stocks that pay dividends, Fidelity Equity Dividend Income (FEQTX) is a smart choice.

What you’ll get with FEQTX is higher-than-average yields and category-busting performance, assuming the future looks anything like the past for this fund.

Since taking the helm of FEQTX about 4.5 years ago, manager Scott Offen has consistently put up returns that have beaten the large-value category averages. And he’s done the job holding high-quality, dividend-producing stocks like JPMorgan Chase & Co. (JPM), Wells Fargo & Co (WFC) and General Electric Company (GE).

Best Dividend Mutual Funds to Buy: Fidelity Strategic Dividend & Income (FSDIX)

Best Dividend Mutual Funds to Buy: Fidelity Strategic Dividend & Income (FSDIX)SEC Yield: 2.77%
Expenses: 0.78%
Minimum Initial Investment: $2,500

Investors looking for a mutual fund that provides a healthy balance of risk, return and yield are smart to take a close look at Fidelity Strategic Dividend & Income (FSDIX).

FSDIX is an aggressive allocation fund that normally invests at least 80% in stocks, with the remainder in bonds, cash and convertibles. Top holdings include large-cap stocks like Johnson & Johnson (JNJ), Chevron Corporation (CVX) and AT&T Inc. (T). The equity mix also includes about 15% REITs.

In addition to decent yields, its long-term performance is a category leader. The five-year return of 9.2% beats 97% of all aggressive allocation funds and the 10-year return of 5.8% beats over 90% of category peers.

Best Dividend Mutual Funds to Buy: American Century Utilities (BULIX)

Best Dividend Mutual Funds to Buy: American Century Utilities (BULIX)SEC Yield: 3.13%
Expenses: 0.67%
Minimum Initial Investment: $2,500

Some of the best dividend mutual funds to buy are those that invest in the utilities sector, and American Century Utilities (BULIX) is a standout in this category.

If you are searching for a good no-load utilities fund with an expense ratio under 1%, you might find three or four — and a few of those will have high minimum initial investment requirements.

Therefore BULIX is an outstanding choice for investors who want to capture the high dividend payouts of quality stocks like Verizon Communications Inc. (VZ), PG&E Corporation (PCG) and American Electric Power Company Inc (AEP).

As for performance, long-term returns have consistently been better than category average for BULIX.

Best Dividend Mutual Funds to Buy: Vanguard High Dividend Yield Index (VHDYX)

VanguardSEC Yield: 3.17%
Expenses: 0.16%
Minimum Initial Investment: $3,000

If you’re looking for a pure dose of stocks that pay high dividends, all wrapped in a cheap, passively managed mutual fund, you might not find better than Vanguard High Dividend Yield Index (VHDYX).

VHDYX tracks the FTSE High Dividend Yield Index, which consists of U.S. companies, such as Exxon Mobil Corporation (XOM), General Electric and Wells Fargo, that consistently pay above-average dividends.

In addition to income, VHDYX shareholders get a good opportunity for growth, as evidenced by the fund’s one-, three- and five-year returns that beat more than 90% of large-value stock mutual funds in each of those time periods.

As compared to the broader market, large-value funds like VHDYX can outperform in bear markets but they often underperform in bull markets.

Best Dividend Mutual Funds to Buy: Fidelity Capital & Income Fund (FAGIX)

Fidelity mutual fundsSEC Yield: 4.61%
Expenses: 0.72%
Minimum Initial Investment: $2,500

Investors looking for a fund that offers a powerful high-yield combination of dividends from stocks and interest from bonds will like what they find in Fidelity Capital & Income (FAGIX).

The asset allocation for FAGIX consists of approximately 70% bonds, most of which are high-yield corporate issues, and 20% stocks, including top holdings like Skyworks Solutions Inc(SWKS), Alphabet Inc (GOOG, GOOGL) and HCA Holdings Inc (HCA), with the remaining 10% allocated to cash.

The performance for this diversified income fund has consistently kept it well ahead of its high-yield category peers, especially for long-term performance.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/best-dividend-mutual-funds-buy/.

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