12 Stock Funds for Income

11/22/2018 5:00 am EST

Focus: FUNDS

Richard Moroney

Editor, Dow Theory Forecasts

For most of 2018, a frothy market and rising interest rates dimmed the appeal of funds tilted toward dividend-paying stocks. But such funds often gain allure when markets are choppy or slumping, asserts Richard Moroney, editor of Dow Theory Forecast.

While it may seem dicey to recommend stock funds in such a choppy environment, the recent tumult has presented opportunities for income investors.

Many attractive stocks now yield near 3% and offer solid profit-growth potential. In addition, many bond funds — popular shelters during volatile markets — are on track to post their first losing year since 2013. The average intermediate term bond fund is down 2% so far in 2018. Income-oriented stock funds have drawbacks.

They tend to be concentrated in a handful of stodgy sectors, including consumer staples, financials, real estate, and utilities. In addition, dividend yield is often viewed as a value trait. Many income funds are overweight value stocks, which have underperformed their growth counterparts in recent years.

Still, investors looking to boost income and bet on cheap stocks should favor funds with good track records and moderate expenses. Below we list 12 high-potential stock funds that offer dividend yields of at least 2.7%, topping the 1.9% yield of the S&P 500 Index.

The 12 funds below pay excellent dividend yields and boast solid growth records over the last three years.

Fidelity Strategic Dividend (FSDIX) — yielding 2.8% (Balanced)
iShares Core U.S. REIT (USRT)  — yielding 5.5% (Real estate)
iShares Int'l Select Dividend (IDV)  — yielding 5.2% (Int’l large value)
iShares Select Dividend (DVY)  — yielding 3.4% (Midcap value)
JP Morgan Diversified Return (JPUS)  — yielding 2.7% (Large blend)
Oppenheimer S&P Ultra Dividend (RDIV)  — yielding 4.2% (Large value)
SPDR SSGA US Small Low Volatility (SMLV)  — yielding 2.8% (Small blend)
Vanguard FTSE Developing Markets (VEA)  — yielding 3.3% (Int’l large blend)
Vanguard High Dividend (VYM)  — yielding 3.1% (Large value)
Vanguard Utilities (VPU)  — yielding 3.1% (Utilities)
WisdomTree Int'l SmallCap (DLS)  — yielding 3.6% (Int’l small/midcap)
WisdomTree US SmallCap Dividend (DES)  — yielding 3.4% (Small-cap value)

Note that several of our recommended funds also offer generous payouts. Two standout picks are profiled:

Yielding 2.8%, SPDR SSGA US Small Cap Low Volatility (SMLV) ranks among the top 1% of small-cap value funds for five-year total return. So far in 2018, the fund has gained 2.2%, versus a loss of 2.2% for its peers. Holding 403 stocks, the ETF is 46% invested in financial and real estate stocks. The expense ratio, a modest 0.12%, equates to only $12 for every $10,000 invested.

A solid all-weather pick, Vanguard High Dividend Yield (VYM) holds more than 400 stocks and yields 3.1%. The ETF has sizeable positions in financials (16% of assets), health care (15%), and consumer staples (14%).

Vanguard High Dividend charges only 0.08% annually and earns a fund score of 93. Its five-year annualized return of 10% outstrips the average gain of 8% for large-cap value funds. The fund’s 10-year annualized return of 13% ranks among the top 25% of its peer group.

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