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. However, 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. Therefore, instead of indicating a rising dividend payout — which is desirable — a rising dividend yield can merely mask 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 all aspects of the potential investment look promising and align well with the investor’s overall portfolio strategy.
All five equities on the best dividend mutual funds to buy now list below offer dividend yields of at least 5%. Additionally, and in line with the requirement mentioned above, all five of these best dividend mutual funds to buy now have 12-month total returns in excess of their respective dividend yields. Actually, the total returns are at least double the dividend yield, which indicates that the stock price growth contributed at least as much as the dividend income to total returns. Moreover, the lowest total return of the stocks on the list over the past year was nearly 12%. At nearly 27%, the lowest three-year total return was more than twice the one-year return and the lowest five-year total return was nearly 31%.
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 net assets as investments into convertible securities and other securities with similar economic characteristics. The fund’s 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.
The fund’s most recent quarterly distribution was $0.118 in mid-June 2019. This quarterly distribution is equivalent to a $0.472 annualized payout and a 6.4% forward yield. The share price growth has suppressed the current yield to slightly more than half of the 12% average over the last five years.
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 September 30, 2019, the fund had more than $48 million in total assets spread across 32 underlying holdings. Only the top two holdings exceed 10% of total assets and the top seven holdings make up nearly half of the fund’s assets.
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 5.12% forward dividend yield.
The combined total return over the trailing 12-months was nearly 12%. The three-year total return was 30% and the total return over the last five years is approaching 40%.
5 Best Dividend Mutual Funds to Buy Now: #3
Lazard Global Listed Infrastructure Portfolio Institutional Shares (NASDAQ:GLFIX)
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 September 30, 2019, the fund’s $7.2 billion of assets under management (AUM) were spread across 27 individual holdings in 11 countries. Holdings in the United States lead with a 25.8% cumulative share of AUM and holdings from Italy follow closely with a 24.4% share. Holdings from the United Kingdom account for another 20% of AUM.
The fund’s current regular dividend corresponds to a 6% forward yield. Combined with asset appreciation, this yield has delivered a total return of nearly 14% over the past year. Long-term stockholders have enjoyed a total return of more than 40% over the past three years and a return of more than 61% over the last five 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 mirrors closely the Bloomberg Barclays Global Aggregate Bond Index and the ICE BofA ML USD LIBOR 3-Month CM Index. The fund’s portfolio consists of 1,185 individual holdings that comprise $64 million in total assets.
The fund accrues dividends daily and distributes them to stakeholders as monthly distributions. Additionally, the fund distributes any capital gains annually. While the monthly payout amounts vary, the fund has boosted its total annual distribution over the past three consecutive years. The current annualized distribution corresponds to a 6.28% dividend yield. Over the trailing 12-months, the fund’s dividend distributions and asset appreciation have combined for a total return of 14.3% with a three-year total return of almost 26%.
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 September 30, 2019, the largest portion (40%) of the fund’s $64 million in total assets were allocated into Treasury securities. Mortgage backed securities accounted for 26.8% and corporate bonds from equities in the Financial sector contributed more than 15%.
A steady stock price decline has kept the three-year total return below 27% and the five-year total return at 30%. However, the stock price recovered fully over the trailing 12 months and combined with the 8.7% dividend yield to produce a one-year total return of 31%.
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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.