Top Dividend Funds — A Quest For Dividend Income
Let's take a look at some top-notch dividend funds .... mutual funds that focus on companies that pay dividends.
Dividends Back In Focus
The recent turmoil in the financial markets has cooled down the manic pursuit of growth. Dividend paying stocks are coming back into focus. But just amassing a portfolio of high-yield dividend stocks doesn't make these funds top performers. In fact, high-yield dividends tend to be fleeting .... usually a one or two time occurrence used by companies to snare investors. The funds that we're going to look at focus on stability and dividend growth ... and that's what makes them top performers. Here are our top 3 picks: Frost Dividend Value Equity A (FADVX)
Frost Investment Advisors, LLC formed 2007 and has over $1.95 billion in mutual fund assets as of 3/31/10. A wholly owned non-banking subsidiary of The Frost National Bank (“Frost”) which was founded in 1868, Frost is one of the largest Texas based national banks with $16.3 billion total financial assets as of 12/31/09. C. Murray Fichtner, senior fund manager, is a long-time veteran of Frost with over 22 yrs. of investment experience and over 40 yrs. of service. Frost has a 5 yr. record of annual average returns on 5.6% .... over twice the S&P500 index. The management seeks long term capital appreciation and current income. Value investing is a central pillar of their investment philosophy. Frost actively focuses on dividend paying stocks. They pay particular attention to stocks with dividend yields greater than the market/sector and dividend growth that beats inflation during a cycle. An additional facet of Frost's strategy that we like is their pursuit of companies with attractive business models that generate cash flow to pay out and grow dividends. BlackRock Equity Dividend A (MDDVX)
Robert Shearer has managed BlackRock since 2001. His portfolio-management experience at the firm dates back to 1997, when he took over BlackRock Natural Resources. Kathleen Anderson, who played a supporting role in BlackRock since 1993, joined Shearer as co-manager in 2003. BlackRock's overall goal is stability. Typically, at least 80% of its assets are in dividend-paying stocks. Management seeks to identify companies that can sustain their dividend and also appreciate capital. We like BlackRock's long-term investing themes. As a result, turnover is very low. The fund can invest in companies of all sizes, but large caps tend to dominate the portfolio. It typically holds 15%-20% of assets in foreign stocks. How has BlackRock done? As of mid 2010, it's 5 yr. annual growth rate is right around 5.4% .... almost twice that of the S&P500 index. T. Rowe Price Dividend Growth (PRDGX)
Tom Huber has been heading this fund since March 2000 and has been with T. Rowe Price since 1994. Huber looks for reasonable valuations and dividend growth. He is drawn to market leaders with high returns on equity and capital. Huber has a reputation for moving cautiously and keeping fund turnover low. PRDGX has a 5yr. record of around 3.9% annual growth as of middle 2010....around 1.2% higher than the S&P 500.
In summary, we covered the basics of dividend funds by looking at three funds we consider to be top performers. The common theme in their investment philosophy? First of all, long-term focus (and therefore low turnover). Next, concentration on companies that have a strong business model (economic moats). And finally, focus on companies with growing cash flow to support dividend payments and growth in dividends over time. Now that you understand the basics, you know what to look for when screening for dividend funds.
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