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New Manager Off to Good Start at Popular Dividend Fund

John Linehan, manager of the Bronze-rated T. Rowe Price Equity Income, has generated fine results since taking over for the retiring Brian Rogers in late 2015.

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T. Rowe Price Equity Income manager John Linehan has gotten off to a good start since taking over for the retiring Brian Rogers in late 2015. Despite changes on the margins, he's kept the fund's longtime strategy intact, providing consistency for shareholders. Below-average fees and strong analytical support contribute to a Morningstar Analyst Rating of Bronze.

Linehan has stayed true to the fund's mandate, investing in undervalued dividend payers. But unlike some equity-income funds, absolute yield is not the driver here: The potential for price appreciation and the quality of company management also matter. Indeed, Linehan sold longtime holding  AT&T (T) (previously a top-20 position under Rogers), showing he won't simply hold a name for its dividend.

That said, the fund's yield has ticked up a bit since Linehan took over. Some recent additions, such as  Ford Motor (F), sport healthy yields. The fund owns those alongside more-cyclical plays with more-anemic payouts, including  Applied Materials (AMAT), a top contributor thus far during his short tenure. In balancing the objectives of income and capital appreciation, the fund's yield won't look exceptionally high relative to some equity-income funds, but it will likely be above the S&P 500 over time.

Portfolio turnover has remained moderate (20% to 30%). Sector weightings haven't wildly changed, but Linehan upped the fund's stake in healthcare stocks, a lack of which had weighed heavily on performance during the past five years. (Rogers stayed light on healthcare because of regulatory concerns.) Meanwhile, he plans to keep cash below 4% of assets; an above-average stake had been a headwind in the post-2008 bull market under Rogers.

Linehan stress tests dividend stability, particularly in capital-intensive sectors such as energy. Cash flows and balance-sheet strength are even more important here than at former charge  T. Rowe Price Value (TRVLX), where he turned in solid results from 2003-09. His experience at that fund helps provide confidence here.

Katie Rushkewicz Reichart does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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