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3 Excellent Dividend-Stock Funds

3 Excellent Dividend-Stock Funds

Russel Kinnel: Hi, I’m Russ Kinnel, director of manager research for Morningstar. Let’s talk dividend funds. There are two common dividend strategies. Equity income maximizes yield while moderating risk, if done right. Dividend growth is a large-blend strategy that seeks companies with the potential to grow their dividends. That requires a strong balance sheet and good growth prospects, but it usually means a lower yield than equity income. Either way, be sure to get a fund with low costs because the expense ratio is subtracted from the yield.

3 Excellent Dividend-Stock Funds

These funds earn a Morningstar Analyst Rating of either Gold or Silver.

  1. Vanguard High Dividend Yield Index VHYAX
  2. T. Rowe Price Equity Income PRFDX
  3. Vanguard Dividend Growth VDIGX

If you want a straight-up yield play, consider Vanguard High Dividend Yield Index. It's a Silver-rated index fund with one of the highest yields among large-value Medalists. The fund only charges 8 basis points.

Also worth considering: T. Rowe Price Equity Income. It's a Silver-rated gem with little lower yield but greater return potential. John Linehan has done a great job moderating risk at this fund while still finding good stocks with growth potential.

Finally, we still love Gold-rated Vanguard Dividend Growth run by Don Kilbride of Wellington. This fund makes a really great core holding because dividend-growth stocks tend to be good defensive plays thanks to their strong balance sheets and growth potential.

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About the Author

Russel Kinnel

Director
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Russel Kinnel is director of ratings, manager research, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He heads the North American Medalist Rating Committee, which vets the Morningstar Medalist Rating™ for funds. He is the editor of Morningstar FundInvestor, a monthly newsletter, and has published a number of prominent studies of the fund industry covering subjects such as manager investment, expenses, and investor returns.

Since joining Morningstar in 1994, Kinnel has analyzed virtually every type of fund and has covered the most prominent fund families, including Fidelity, T. Rowe Price, and Vanguard. He has led studies on the predictive power of fund data and helped develop the Morningstar Rating for funds and the Morningstar Style Box methodology. He was co-author of the company's first book, Morningstar Guide to Mutual Funds: 5-Star Strategies for Success (Wiley, 2003), and was author of the book Fund Spy: Morningstar's Inside Secrets to Selecting Mutual Funds That Outperform, published in 2009.

Kinnel holds a bachelor's degree in economics and journalism from the University of Wisconsin.

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