3 Great Dividend-Growth Funds

Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar.com. Dividend growth funds focus on companies that have a history of increasing their dividends. Companies that regularly boost their dividends often have sustainable competitive advantages. A collection of such high-quality companies can make an excellent core holding. As such, even investors who aren't yield seekers may find plenty to like among dividend growth funds. We asked our analysts to share some of their favorites.

Katie Reichart: T. Rowe Price Dividend Growth receives a Morningstar Analyst Rating of Silver. Tom Huber has run the fund since 2000. He emphasizes free cash flow and capital allocation by management teams to ensure that his holdings will continue to pay dividend and grow them. The fund's diversified portfolio and focus on financially stable companies has given it a tame risk profile. During Huber's tenure it's lost just 79%, as much as the S&P 500 Index in market downturns. Growth-led markets aren't its strong suit; it lagged in 2017, for instance. However, long-term risk-adjusted results are solid, and the fund also has below-average expenses.

Adam McCullough: Vanguard Dividend Appreciation Fund is an excellent choice for investors looking for a broadly diversified portfolio of stocks with the potential to raise their dividend payments in the future. This fund earns a Morningstar Analyst Rating of Gold. This fund starts with all the stocks in the U.S. market that pay dividends and screens out for only those that have raised their dividends consistently for the past 10 years. This is a high hurdle. This fund excludes stocks like Apple that have only started paying their dividend in the past 10 years. Next, it applies proprietary quality screens to look for names that have the potential to raise their dividend payments in the future. Because the fund is more focused on dividend growth and dividend yield, its yield is about the same as the Russel 1000 Index. But this leads to a more defensive portfolio that holds up better during market downturns. For example, this fund drew down 8% less than the Russel 1000 Index during the financial crisis from October 2007 through March 2009. It's a great fund option for investors looking for a stable portfolio of dividend-paying stocks with the potential to raise their dividend payments in the future. It's also a very cheap fund. Vanguard only charges 8 basis points for the Admiral share class of the fund and charges the same price for the ETF share class of the fund as well.

Alec Lucas: Hartford Dividend and Growth is a good option for investors who want companies that pay dividends as well as have above-average growth prospects. Lead manager Edward Bousa roots the portfolio in stocks that pay above-average dividends; Bank of America, for example, fits that bill. He also pays attention to supply/demand dynamics and will invest in companies poised to benefit from supply/demand imbalances. Chevron is the company that he holds for that reason. He will also buy growth-oriented companies when they fall out of favor. He bought Alphabet, for example, a few years ago. The fund has a consistent record. Fees could be a bit lower than they are currently, but Bousa's skill and a strong management team are good enough to overcome the fund's fee hurdle, and it's a very reliable option.