Dividend-paying stocks distribute regular dividends to shareholders in the form of cash, common stock or other properties. Investing in mutual funds that hold dividend-paying stocks can provide a steady stream of income to investors, as well as potential long-term returns. It may also help buffer market volatility.
The following three mutual funds hold dividend-paying stocks with higher-than-average annual return rates and lower-than-average expense ratios, making them solid choices for any investor. The information provided here was accurate as of Sept. 30, 2018.
Vanguard Dividend Appreciation Index Fund Investor Shares
The Vanguard Dividend Appreciation Index Fund Investor Shares (VDAIX) is best suited for long-term investors that are moderately to highly risk-tolerant. The fund was issued on April 27, 2006, by Vanguard, and it has generated an average annual return of 8.72% since its inception. As of May 25, 2018, VDAIX requires a minimum investment of $3,000 and charges an annual expense ratio of 0.15%, which is 84% lower than the average mutual fund with similar holdings.
The Vanguard Dividend Appreciation Index Fund is managed by the Vanguard Equity Investment Group, which seeks to track its benchmark index, the NASDAQ U.S. Dividend Achievers Select Index. The fund's benchmark index includes common stocks of companies with a track record of increasing dividends over time. The fund seeks to replicate the general price and yield performance of its underlying index by investing a substantial amount of its assets in the common stocks comprising the index.
VDAIX holds 182 stocks with a median market capitalization of $70.1 billion, a return on equity of 20.2% and an earnings growth rate of 3.1%. Since the Vanguard Dividend Appreciation Index Fund holds only dividend-paying stocks, it is considered a moderately high-risk investment. However, the fund compensates the high degree of risk with a 30-day SEC yield of 1.88%, which is greater than that of its benchmark index.
Vanguard Equity Income Fund Investor Shares
The Vanguard Equity Income Fund Investor Shares (VEIPX) was issued on March 21, 1988, and seeks to provide exposure to dividend-paying stocks across many industries. The fund has generated an average annual return of 8.69% since its inception. Like many Vanguard funds, the Vanguard Equity Income Fund Investor Shares offers a competitive expense ratio of 0.26%, which is 74% lower than the average mutual fund with similar holdings.
The Vanguard Equity Income Fund Investor Shares is managed by two advisors and holds 190 stocks that amount to $33.4 billion in total net assets. Its portfolio is diverse, and its largest holdings include companies in the financial, healthcare, information technology and energy industries, among others.
Similar to many mutual funds that hold only dividend-paying stocks, the Vanguard Equity Income Fund Investor Shares carries a moderate to high degree of risk. However, the fund offers a 30-day SEC yield of 2.74% and seeks reasonable long-term capital appreciation. The minimum investment is $3,000.
Columbia Dividend Income Fund
The Columbia Dividend Income Fund (GSFTX) was issued on March 4, 1998, by Columbia Threadneedle Investments. Since its inception, the fund has generated an average annual return of 7.98%. Additionally, the fund has a 30-day SEC yield of 1.54% and $12.1 billion in total net assets.
GSFTX invests in common stocks of healthy companies that have a growing free cash flow. Additionally, the fund invests in companies that are likely to increase their dividends and have a history of sustaining and growing dividend yields. Information technology companies hold the largest share of the portfolio, followed by financial services companies.
The Columbia Dividend Income Fund requires a minimum investment of $2,000 and is best suited for investors who are looking for low risk and long-term value.