Russel Kinnel: Hi, I’m Russ Kinnel, director of manager research for Morningstar. Let’s talk dividend funds. There are two common dividend strategies. Equity income maximizes yield while moderating risk, if done right. Dividend growth is a large-blend strategy that seeks companies with the potential to grow their dividends. That requires a strong balance sheet and good growth prospects, but it usually means a lower yield than equity income. Either way, be sure to get a fund with low costs because the expense ratio is subtracted from the yield.
3 Excellent Dividend-Stock Funds
These funds earn a Morningstar Analyst Rating of either Gold or Silver.
- Vanguard High Dividend Yield Index VHYAX
- T. Rowe Price Equity Income PRFDX
- Vanguard Dividend Growth VDIGX
If you want a straight-up yield play, consider Vanguard High Dividend Yield Index. It's a Silver-rated index fund with one of the highest yields among large-value Medalists. The fund only charges 8 basis points.
Also worth considering: T. Rowe Price Equity Income. It's a Silver-rated gem with little lower yield but greater return potential. John Linehan has done a great job moderating risk at this fund while still finding good stocks with growth potential.
Finally, we still love Gold-rated Vanguard Dividend Growth run by Don Kilbride of Wellington. This fund makes a really great core holding because dividend-growth stocks tend to be good defensive plays thanks to their strong balance sheets and growth potential.