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3 Outstanding Dividend-Growth Funds

Here are some of our favorite funds that invest in dividend growers.

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Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar.com. There's a lot to like about dividend growth stocks. Not only do they pay out income on a regular basis, but they also tend to be highly profitable, financially healthy companies. Today, we're taking a look at some of our favorite funds that invest in dividend growers.

Alec Lucas: Vanguard Dividend Growth has held its own in the coronavirus sell-off thus far. Since the S&P 500 index peaked on Feb. 19, the fund's 26.3% loss is 3.1 percentage points better than the S&P 500 and edges the fund's Nasdaq US Dividend Achievers Select Index by about 3 basis points. The fund's universe of growth stocks as measured by its index, though, peaked on Feb. 14. Since that date, through March 16, the fund is 5 basis points behind its benchmark.

Its lone energy-holding Exxon held it back, versus its benchmark, as did Abbott Laboratories, which it did not own. The fund's long-term record, though, remains consistently superior to that of the benchmark.

Stephen Welch: T. Rowe Price Dividend Growth is run by a veteran manager. Tom Huber invests for the long-term and looks for companies with durable competitive advantages, ample cash flow, and sound management teams. The resulting portfolio is diversified across sectors with financially healthy firms able to sustain or grow their dividends.

The avoidance of more-speculative names has led to improved downside protection. Since Huber's early 2000 start through February 2020, the strategy's 7.5% annualized gain beat the S&P 500 index by 2 percentage points. It earns a Morningstar Analyst Rating of Silver as of July 8, 2019.

Venkata Sai Uppaluri: SPDR's S&P Dividend ETF is a solid income strategy that targets companies that are consistently growing their dividends over the long term. which should reduce exposure to companies with weak fundamentals. When there are cheaper index alternatives available, the fund's fees compared with its category peers and our confidence in its approach support the Morningstar Analyst Rating of Silver.

The fund fully replicates the S&P High Yield Dividend Aristocrats Index, which includes stocks from the S&P 1500 Index that have raised dividend payments for at least 20 consecutive years. The fund's focus on firms that are financially healthy enough to grow their payouts favors profitable companies with durable competitive advantages and shareholder-friendly management teams.

It then rates these stocks by yield, which increases its value tilt and boosts current income. Chasing yield might introduce riskier stocks into the mix. Firms sporting higher yields might have weak fundamentals and high dividend payout grades, leaving a small buffer to protect their dividends should earnings fall.

However, this fund's dividend growth team mitigates exposure to these firms. State Street Global Advisors charges a fee of 35 basis points for this fund, a fraction of the 85 basis points charged by the median large-value fund.

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