5 Best Dividend Mutual Funds to Buy Now
By: Ned Piplovic,
Despite the proliferation of exchange-traded funds (ETFs) since their introduction in the 1990s, astute investors can still find robust returns among more traditional investment vehicles such as the five best dividend mutual funds to buy now.
However, a high yield by itself is not sufficient for inclusion on this list. While the yield is an easy indicator of an equity’s income distribution level — and usually the first metric income investors seek — the dividend yield can be a misleading gauge when considered on its own.
The dividend yield is directly proportional to the equity’s annual dividend payout amount. Therefore, a rising dividend distribution payout also means that there will be a higher dividend yield. But this also means the dividend yield is inversely proportional to the equity’s stock price. Consequently, an increase in the equity’s dividend yield can result from a declining stock price, so instead of indicating a rising dividend payout — which is desirable — a rising dividend yield can merely be caused by a stock price downturn.
Additionally, the dividend payout amount and the stock price move constantly and concurrently. The movement of both variables in the same direction amplifies the combined effect and movement in opposite directions offsets the magnitude of both variables.
Investors can build complex multi-variable models to conduct analytical paradigms. However, while professional traders in institutional investors have the necessary resources to build such models, retail and part-time investors can use some shortcuts.
The simplest way for investors to ensure an equity’s overall value is to consider the total return over a set period. As already indicated, high dividend yields can hide a falling stock price. Because stock price movements are significantly more volatile, a significant stock price decline will generally cancel out all dividend income payouts and result in overall losses for the investor.
However, as long as an equity’s total return over a specific period exceeds the equity’s dividend yield over the same period, investors should consider that particular equity as a potential investment target. However, investors also must conduct their own detailed analysis and all necessary due diligence to ensure that every aspect of the potential investment looks promising and aligns well with the investor’s overall portfolio strategy.
5 Best Dividend Mutual Funds to Buy Now: #5
TETON Westwood Convertible Securities Fund Class A (NASDAQ:WEIAX)
The TETON Convertible Securities Fund seeks to provide a high level of current income, with long-term capital growth as the fund’s secondary goal. The fund targets at least 80% of its $6.9 million of assets as investments into convertible securities and other securities with similar economic characteristics. Its investment strategy seeks to provide income and capital growth protection in a way that mimics the income and capital growth protection afforded by bonds. Additionally, an increase in the issuer’s stock price offers the additional benefit of potentially higher returns than bonds can provide.
TETON Convertible Securities Fund currently yields 1.14% but its low dividend yield is no reason to write the fund off. Its stock price returns in the trailing 12 months were 27.35%, or 28.49% in total returns after adjusting for dividend income. The fund has a history of high capital growth, managing to grow an average of 15.38% per year over the last three years and 10.54% per year over the last ten.
5 Best Dividend Mutual Funds to Buy Now: #4
Matisse Discounted Closed-End Fund Strategy Institutional CL (NASDAQ:MDCEX)
Matisse Discounted Closed-End Fund Strategy is an open-end mutual fund that was incorporated in the United States. The fund seeks to provide investors with a total return that consists of long-term capital appreciation and income. As a “fund of funds”, this Matisse fund targets other closed-end funds that invest in both equity and fixed-income securities.
As of December 18, 2020, the fund had more than $273 million in total assets — just under half (44%) of its assets are distributed between the top 10 holdings. The fund generally distributes four regular dividend distributions per year, with any long-term gains distributed as additional special distributions in December. The current annualized regular payout amount corresponds to a 5.01% forward dividend yield.
The combined total return over the trailing 12-months was nearly 16%, and the fund averaged an unadjusted return of 7.82% per year over the last five years.
5 Best Dividend Mutual Funds to Buy Now: #3
Lazard Global Listed Infrastructure Portfolio Institutional Shares (NASDAQ:GLIFX)
The Lazard Global Listed Infrastructure Portfolio is an actively managed portfolio that seeks long-term, defensive, low-volatility returns that exceed inflation. The fund invests in the equity securities of infrastructure companies with a minimum market capitalization of $250 million.
As of December 18, 2020, the fund’s $7.6 billion of assets under management (AUM) were spread across 27 individual holdings in more than 18 countries. Holdings in Italy lead with a 21.17% cumulative share of AUM and holdings from the United Kingdom follow closely with a 19.99% share. Holdings from the United States account for another 12.69% of AUM.
The fund’s current regular dividend corresponds to a 3.64% forward yield. Combined with asset appreciation, this yield has delivered a -0.41% in the last 12 months. Long-term stockholders have enjoyed more typical total return averaging 11% per year over the last 10 years.
5 Best Dividend Mutual Funds to Buy Now: #2
PGIM Global Dynamic Bond Fund Class R6 (NASDAQ:PAJQX)
The PGIM Global Dynamic Bond Fund is an open-ended fund that seeks positive returns through investments in domestic and foreign aggregate bonds. The fund’s investment strategy closely mirrors the Bloomberg Barclays Global Aggregate Bond Index and the ICE BofA ML USD LIBOR 3-Month CM Index. The fund’s portfolio consists of $34.5 million in total assets and only one holding has more than 1% of its total net assets: PGIM Core Ultra Short Bond Fund.
The fund accrues and distributes dividends daily, maintaining a dividend yield of 5.51%. Additionally, the fund distributes any capital gains annually. Over the trailing 12-months, the fund’s dividend distributions and asset appreciation have combined for a total return of 8.4%, where its average annual unadjusted return over the last five years is 7.29%.
5 Best Dividend Mutual Funds to Buy Now: #1
State Street Aggregate Bond Index Fund – Class A (NASDAQ:SSFCX)
The State Street Aggregate Bond Index Fund attempts to mirror the performance of the Bloomberg Barclays U.S. Aggregate Index that tracks the U.S.-dollar-denominated investment-grade bond market over the long term. Generally, the fund will invest a minimum of 80% in the securities that comprise the underlying index or other securities that the fund’s managers deem comparable to the securities that comprise the index.
As of December 18, 2020, the largest portion (36.86%) of the fund’s $10.85 million in total assets was allocated into ProShares Ultra 7-10 Year Treasury Bonds, and 12.3% was allocated to the Federal National Mortgage Association, also known as Fannie Mae.
State Street Aggregate Bond Index Fund has a total return of 9.18% in the last year, with 2.07% of that coming from dividend distributions.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.