It used to be that dividend-paying stocks and stock funds were seen as fit only for orphans and widows. But following the market volatility of 2008 and the current uncertainty of the low-yielding bond market, investing in companies that pay dividends is now seen as a prudent choice.
“Management shares the growth of the business directly with shareholders through dividend increases. It’s a vital sign of financial health,” Josh Peters, editor of Morningstar’s DividendInvestor told The Wall Street Journal’s “Fund Track” column.
“The climate is very positive for dividend stocks,” concurred Harry Domash, publisher of DividendDetective.com. “A year or so ago, it was about finding stocks that weren’t going to cut their dividend and go out of business. Now it’s about finding high-yielding stocks in good sectors.”
Christine Benz, director of personal finance at Morningstar, did a search for diversified, dividend-paying stock funds with three criteria she says are important: 12-month trailing yields of 2% or better, below-average risk and expenses, and a track record of at least five years. The search yielded (pardon the pun) 18 retail funds.
The five best-performing funds Benz found were the: Vanguard Equity Income, Vanguard Dividend Growth, American Funds American Mutual Trust Series B and State Farm Growth funds.
A similar search for the best-performing dividend-paying exchange-traded funds found: iShares Dow Jones Select Dividend Index, WisdomTree SmallCap Dividend, SPDR S&P Dividend, Vanguard High Dividend Yield Index ETF and WisdomTree MidCap Dividend funds.