5 High Yield Mutual Funds to Buy Now
By: Ned Piplovic,
While exchange-traded funds (ETFs) have been gaining popularity over the past decade, investors are not dismissing more-traditional diversification instruments like the five high-yield mutual funds to buy now, listed below.
However, a high yield was not the only requirement for inclusion on this list. Because the Dividend Yield is inversely proportional to the fund’s stock price, a high yield can be a mere function of a steep share price drop. Therefore, interested investors must consider additional metrics before deciding which mutual fund to add to their investment portfolio.
To ensure that a mutual fund or any other security offers capital gains and dividend income distributions, investors can simply use the total return over a set period. As long as the total return over the desired time period exceeds the dividend yield over the same period, the equity’s capital gains will be positive, and the equity is worth consideration for further analysis.
In addition to current yields of more than 6%, all five of the high-yield mutual funds to buy now on the list below have total returns of more than 8% over the last year and double-digit-percentage total returns over the past three years.
Four of the five funds pay monthly distributions and one delivers quarterly payouts. Also, three funds have paid at least one special dividend over the last 12 months in additional to their regular monthly distributions. Lastly, four of the funds have boosted their annual distribution amount over the last three years, with the remaining funding extending its streak of consecutive annual distribution hikes to four years.
5 High Yield Mutual Funds to Buy Now: #5
PIMCO Real Estate Real Return Strategy Fund Class C (NASDAQ:PETCX)
The fund seeks to capture the performance potential of real estate through derivative exposure to the broad-based Dow Jones U.S. Select Real Estate Investment Trust (REIT) Index. This exposure is collateralized with a portfolio of TIPS that provide additional return and inflation hedging potential. As of July 31, 2019, the fund had $1.36 billion in total assets.
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 suppressed the current yield to slightly more than half of the 12% average over the last five years.
Pushed by the overall market correction in the last-quarter 2018, the share price declined nearly 15% towards its 52-week low of $5.79 on December 24, 2018. After bottoming out in late December, the share price reversed trend and rose more than 27% to close on September 4, 2019, at its 52-week high of $7.36. This closing price was 8.7% higher than it was 12 months earlier to combine with dividend income for 13.2% one-year total returns and 27% total returns over the last five years.
5 High Yield Mutual Funds to Buy Now: #4
Strategic Income Fund Class Y (NASDAQ:HSNYX)
This fund seeks returns by investing in domestic and foreign debt securities, such as non-investment grade debt securities, foreign securities and highly rated securities. As of July 31, 2019, the fund had $601 million in total net assets. These assets were spread across 973 holdings with the top 10 holdings accounting for nearly 32% of total assets.
The fund has hiked its annual distribution over the past three years and the current $0.56 annualized dividend yields 6.46%, which is 11.4% higher than the fund’s own 5.8% yield average over the last five years.
The fund’s share price declined nearly 5% in the fourth quarter 2018 and bottomed out at its 52-week low of $8.05 on December 27, 2018. However, the share price recovered fully by the beginning of June 20219 and continued to rise towards its 52-week high of 8.69 on August 9, 2019. After closing at $8.67 on September 4, 2019, the share price was 2.5% higher for the trailing 12 months.
5 High Yield Mutual Funds to Buy Now: #3
American Funds Emerging Markets Bond Fund (NASDAQ:EBNAX)
This fund invests in sovereign and corporate bonds, denominated in either U.S. dollar or local currency issues, which may serve as a source of favorable returns and potential diversification. As of July 31, 2019, the fund’s investment in more than 60 individual holdings accounted for nearly $875 million in total assets.
The fund’s annualized distribution amount of $0.64 yields 6.56%. Since inception, the fund has managed to increase its annual dividend payout 11% over the last three consecutive years. The average distribution growth rate over those three years 3.4%.
After passing through its 52-week low of $9.18 in early September 2018, the share price advanced nearly 10% before reaching its 52-week high of $10.08 on July 22, 2019. Since the late-July peak, the share price has pulled back 3.3% to close on September 4, 2019, at $9.75.
This closing price was 6.1% higher than one year earlier and contributed more than half of the 10.6% total return over the last 12 months.
5 High Yield Mutual Funds to Buy Now: #2
Diamond Hill Short Duration Total Return Fund Class Y (NASDAQ:DHEYX)
This low-cost fund generally invests at least 80% of its assets in investment grade, fixed income securities, including asset-backed, mortgage-related and mortgage-backed securities. Furthermore, the fund may invest up to 20% of its assets in below-investment grade securities and usually maintains an average portfolio duration of less than three years.
As of June 30, 2019, the funds’ total assets of $661 million were invested across 349 individual holdings. More than 90% of the holdings had a duration of less than three years. The current annualized distribution of $0.70 corresponds to a 6.86% dividend yield.
After fluctuating less than 2% in either direction from its level at the beginning of the trailing 12 months, the share price closed on September 4, 2019, at $10.20. The combined total returns over the trailing 12-month period exceeded 8% and the fund delivered a 15.2% total return over the last three years.
5 High Yield Mutual Funds to Buy Now: #1
PGIM Global Dynamic Bond Fund Class R6 (NASDAQ:PAJQX) (NASDAQ:PAJQX)
This fund seeks returns by investing in a variety of bonds across global markets. As of July 31, 2019, the fund had $56 million 6 million in total assets spread across 15 equities, 482 bonds and more than 1,600 other holdings.
The fund’s current $0.06 monthly distribution corresponds to a $0.72 annualized payout. This payout is equivalent to a 6.94% forward dividend yield. Since inception in late 2015, the fund had boosted its annual distribution every year. Ove the past four years, the fund enhanced its annual payout 67%, or at an average growth rate of 13.6% per year.
After declining more than 2.4% in the last quarter of 2018, the share price hit its 52-week low of $9.69 on December 26, 2018. However, the share price recovered in 2019 and rose 7.4% above this low before reaching its 52-week high of $10.41 on July 5, 2019.
Since the July peak, the share price pulled back 0.3% to close on September 4, 2010, at $10.38, which was 4.5% higher than 12 months earlier.
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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.