Investment objectives often involve getting steady returns in
the form of dividends. Particularly in times of volatility, regular
dividends help to soften the blow of falling stock prices. Mutual
fund itself is a great tool for alternative investment given its
characteristics of diversification, liquidity and economies of
scale among others. On top of it, mutual funds paying high
dividends assure consistent stream of income opportunities; and
thus are lucrative investment options.
Cushion from Volatility
After the record run in 2013; wherein the benchmarks kept hitting
record highs on several instances, markets started this year on a
very dismal note. Emerging market concerns, China's dismal economic
data and finally the Federal Reserve's $10 billion cut to the
economic stimulus dealt severe blows to the markets. In January,
the blue-chip index plunged 5.3%, S&P 500 was down 3.6% and
Nasdaq declined 1.7%. This was the blue-chip index' worst start
However, things turned remarkably well soon after and benchmarks
ended higher in February. The Dow Jones jumped 4% in February while
S&P 500 and Nasdaq scored gains of 4.3% and 5%, respectively.
It was Nasdaq's biggest monthly gain since September 2013. Since
end of January, the Dow, S&P 500 and Nasdaq have gained 5.9%,
6.6% and 5.7%, respectively.
However, volatility cannot be ruled out in near future given the
various macroeconomic factors. On the domestic front, the Federal
Reserve has decided to stick to its stimulus cut. Starting April,
the bond buyback plan will be $55 billion. Separately, the standoff
between Russia and western nations over the annexation of Crimea is
a lingering issue of late. (Read:
Russia Mutual Funds to Watch on Ukraine Crisis
Equity Income Funds
Equity funds whose primary objective is to provide regular income
flows are a natural choice for investors willing to forgo long
term-capital appreciation for current income. A portfolio providing
income as well as holding equities also offers better
diversification. Mutual funds holding income generating equity
securities offer a convenient route to investors looking to hold a
well diversified portfolio.
To summarize, dividend paying mutual funds are one of the best
diversified ways to boost portfolio returns. Also, it is also often
said that companies paying dividends are usually the matured firms
and have a healthy financial structure.
Let us look at equity mutual funds that sport a Zacks Mutual Fund
Rank #1 and have dividend yield of at least 3%.
Madison Covered Call & Equity Income A
(MENAX) seeks steady constant returns and high income from option
premiums. The fund invests in mid cap and large cap equity
securities. Companies with growth potential are also considered for
investment. A minimum of 65% of its assets are invested in large
The fund has a dividend yield of 5.48%. The fund has returned
11.26% and 8.16% over the last one and three years,
respectively.The fund's top holdings include eBay Inc, Directv and
Advance Auto Parts Inc.
American Funds Capital Income Builder A
(CAIBX) seeks increasing income over years and capital appreciation
is the secondary aim. It invests 90% of its assets in a variety of
income-producing securities. The fund may also invest in foreign
common stocks or bonds.
The fund has a dividend yield of 3.13%. The fund has returned
10.70% and 9.26% over the last one and three years, respectively.
The fund's top holdings include Philip Morris International, Inc.,
Altria Group Inc. and Vodafone Group PLC.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find
funds that not only outpaced the market in the past but are also
expected to outperform going forward.
Learn more about the Zacks Mutual Fund Rank.
View All Zacks #1 Ranked Mutual Funds
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