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Fund Spy

Dividend Funds That Live Up to Their Names

Four equity funds with consistent records of investing in high-yielding stocks.

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After a dry spell in the go-go era of the late 1990s, it's become more common in recent years for companies to pay a dividend to holders of their equity.  Microsoft (MSFT) helped kick off a trend when it started issuing dividends several years ago, and other cash-rich firms have followed suit. True, at 2%, the yield of the S&P 500 Index still isn't exactly lofty, but that's double the benchmark's yield a decade ago.

Unfortunately, many actively managed funds, even those that appear to have a mandate to seek out dividends, still give shareholders only paltry payouts. For example, less than half of the funds with "dividend" in their names that hold at least 90% of their asset in stocks recently boasted either a one-month or 12-month trailing yield of more than 2% net of fees. For yield-seeking investors, we've tracked down several stock funds with a consistent record of paying above-average dividends that also have experienced skippers and solid track records.

 Vanguard Equity-Income (VEIPX)
This large-value fund at the end of July had a healthy 12-month payout of 2.72% and a one-month yield of 2.86%. It doesn't attempt to boost its yield by holding distressed companies. Indeed, Michael Reckmeyer of Wellington Management (who runs 60% of the fund) and Vanguard's quantitative investing group (which manages the rest) typically stick with companies that have solid balance sheets and generate plenty of cash. It has been a winner over the short and long haul, and its low (0.31%) expense ratio lets more of its holdings' dividends flow through to shareholders.

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