Skip to Content
Our Picks

Need Yield? These Stock Funds Have Income

Try this screen for dividend-seeking funds with winning long-term records.

For those with long-term investment horizons, dividend-focused funds offer a great way to reap the rewards of income-generating stocks while minimizing the risk that firm-specific problems at a few companies will affect your entire portfolio.

A mutual fund's yield is an annual percentage measure of income (dividends and interest) earned by the portfolio's holdings, net of the fund's expenses.  Morningstar's Premium Fund Screener allows you to search for trailing 12-month yield, which is calculated by taking the weighted average of the yields of the stocks or the funds (if it's a fund of funds) in the portfolio for that time frame. In this case, the screen narrows the field to funds with trailing 12-month yields greater than that of  Vanguard 500 Index Investor (VFINX). While this won't lead exclusively to dividend-focused strategies, it turns up additional funds that can appeal to yield-hungry types.

Other basic criteria for this screen include focusing on domestic stock funds with below-average expense ratios that are open to new investments of $25,000 or less. Lastly, fund manager tenure is set to greater than the category average, and each fund's 10-year category ranking is above average.

As of Dec. 7, 2009, the Premium Screener returned 17 domestic stock funds. To see the results for yourself,  click here. (Don't have a Premium Membership? You can still use our Premium Fund Screener by taking a free, 14-day trial.)

Large-value Analyst Pick  American Funds Washington Mutual (AWSHX) is a dividend-seeker's delight. It's filled with stocks of firms that have paid dividends in nine of the past 10 years and also tends to be well-diversified in terms of individual stocks and sectors, though it's typically underweight technology where dividends aren't common. The fund's dividend-centric strategy has kept it behind most peers during this year's rally, but that's not unusual. It also typically holds up well when times are tough, and long-term it's been a reliable core value-leaning offering.

Similarly,  American Century Equity Income (TWEIX) has been a large-value laggard last year, but a long-term winner. Its seasoned management team traffics primarily in large-cap, financially sound companies that pay dividends. This means that the portfolio is generally anchored in dividend-rich sectors such as utilities, energy, financials, and industrials. Given that the team is quick to sell stocks that get too pricey, the fund's turnover is high compared to similar offerings, so this one is best kept in a tax-sheltered account.

Though four other subadvisors contribute to  Vanguard Windsor II's (VWNFX) stock picks, Jim Barrow of Barrow, Hanley, Mewhinney & Strauss is responsible for roughly two thirds of this fund's assets. He focuses on roughly 50 large-cap stocks that are attractively valued and sport above-average dividend yields. But this fund hasn't been a wallflower this year. Its 25% gain for the year to date ending Dec. 7, 2009, ranks it in the top quartile of large-value offerings and was fueled in part by larger-than-average stakes in industrial materials and hardware firms. Barrow has been largely responsible for the fund's strong record since its 1985 inception, and its dividend cushion should continue to provide ballast during bumpy markets. Ideas Week
Gear up for the new year with Morningstar analyst insights on the economy and state of the recovery; our top equity, fund, and ETF picks; critical portfolio-planning opportunities; how Washington reforms may shake out for your investments; our Ultimate Contrarian Moves for 2010; and much more. Click here to learn more.

Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.