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4 Great Dividend Funds

These funds know the right way to buy dividend stocks.

4 Great Dividend Funds
Securities In This Article
Vanguard Dividend Appreciation Index Adm
T. Rowe Price Dividend Growth
Apple Inc
Vanguard Intl Hi Div Yld Adm
Fidelity Equity-Income

Russel Kinnel: A good dividend fund can deliver income, appreciation, and even defensiveness if you find the right one. There are two main dividend strategies: growth and yield. Dividend growth strategies sacrifice some short-term yield to find companies with potential to raise dividends over time. That requires a healthy balance sheet and good growth prospects. Dividend yield strategies go straight for the yield but still look for companies with good fundamentals. I’ve got two picks from each camp.

4 Great Dividend Funds

  1. T. Rowe Price Dividend Growth PRDGX
  2. Vanguard Dividend Appreciation Index VDADX
  3. Vanguard International High Dividend Yield VIHAX
  4. Fidelity Equity Income FEQIX

For dividend growth, I’m a fan of T. Rowe Price Dividend Growth PRDGX, which we recently upgraded to Gold. Tom Huber is a steady hand, seeking out companies with strong cash flow and competitive advantages. He builds a diversified portfolio that tends to shine when things are darkest. In 2022, the fund’s 10% loss was about 900 basis points less than the market thanks to a strong emphasis on quality and balance sheets.

Passive is also a good way to go here. Vanguard Dividend Appreciation Index VDADX tracks an index that looks for companies raising dividends but eliminates the 10% highest yielders because those are higher risk. This Gold-rated fund charges just 8 basis points, and it’s available both in open-end and ETF formats.

For dividend yield, let’s stay with a passive Vanguard approach and discuss Vanguard International High Dividend Yield VIHAX. The fund paid out a yield of more than 4% the past 12 months by taking the higher-yielding half of foreign equities and then market-cap weighting them. It’s a simple, cheap, and effective way to invest.

Silver-rated Fidelity Equity-Income FEQIX is a good choice among actively managed equity-income funds. Ramona Persaud is a cautious value investor who has guided the fund to steady results. She looks for solid cash flow companies that pay dividends. And though most of her picks are typical equity-income names, she will dabble in growth names like Apple AAPL to boost return potential.

Watch “3 Income Funds to Avoid in 2023″ for more from Russel Kinnel.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Russel Kinnel

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Russel Kinnel is director of ratings, manager research, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He heads the North American Medalist Rating Committee, which vets the Morningstar Medalist Rating™ for funds. He is the editor of Morningstar FundInvestor, a monthly newsletter, and has published a number of prominent studies of the fund industry covering subjects such as manager investment, expenses, and investor returns.

Since joining Morningstar in 1994, Kinnel has analyzed virtually every type of fund and has covered the most prominent fund families, including Fidelity, T. Rowe Price, and Vanguard. He has led studies on the predictive power of fund data and helped develop the Morningstar Rating for funds and the Morningstar Style Box methodology. He was co-author of the company's first book, Morningstar Guide to Mutual Funds: 5-Star Strategies for Success (Wiley, 2003), and was author of the book Fund Spy: Morningstar's Inside Secrets to Selecting Mutual Funds That Outperform, published in 2009.

Kinnel holds a bachelor's degree in economics and journalism from the University of Wisconsin.

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