Special Report:Mutual Fund Strategies
V olatility in the stock market might send some investors scurrying for cover. But those who favor dividends are probably less likely to panic. If selected carefully, dividend stocks can offer the best of both worlds: stock-price performance and a steady payout.
So dividend funds can be key components of long-term mutual fund investing .
Here are some of the top stocks -- by those two measures -- held by leading mutual funds, based on their 10-year annualized return.
SunAmerica Focused Dividend Strategy led with a 11.18% average annual return for the period. The fund has $8.8 billion in assets under management.
Many of its top holdings are classic dividend plays such asMcDonald's ( MCD ),General Electric ( GE ) andPfizer ( PFE ). One of its big stakes at the end of June wasReynolds American ( RAI ), which not only pays hefty dividends but has also performed well this year.
Shares of the tobacco company have rallied more than 40% this year, while the S&P 500 remains underwater. The Camel and Pall Mall cigarette maker pays a quarterly dividend of 36 cents a share, or $1.44 annualized, which works out to a 3.2% yield. The S&P 500's average payout is 2.1%.
SunAmerica also held shares ofAltria Group ( MO ). The Marlboro maker in August raised its quarterly dividend by 8.7% to 56.5 cents a share. That works out to an annualized yield of 4.1%. Shares are up 15% this year.
Another big holding,AT&T (T), tops IBD's Dividend Leaders list with a 5.9% annualized payout. But the stock, down 1% this year, has been a laggard.
Lockheed Martin (LMT) offers a dividend yield of 3.3% on an annual basis. The defense contractor and F-35 fighter-jet maker's stock price has appreciated 11% this year, beating the broader market.
Sit Dividend Growth , with $1.1 billion under management, produced a 10-year average annual return of 9.05%. Its top holding based on percentage of assets wasMedtronic (MDT).
Shares are up 1% for the year. The medical-device maker is a member of the S&P 500 Dividend Aristocrats, companies that have raised their dividend payout for at least the past 25 consecutive years. Its annualized yield is 2.4%.
Vanguard Dividend Growth came in a 9.16% return. It manages $24 billion in assets. Lockheed is among its biggest positions. Dividend aristocratsCardinal Health (CAH),Coca-Cola (KO) andJohnson & Johnson (JNJ) also make its top holdings. Their annualized yields are 2%, 3.3% and 3.2%, respectively. But like the S&P 500, all are in the red for the year.
Utilities are popular with dividend investors because they tend to have high yields. While utilities fare well when interest rates are low, they could compete with bonds for investors' assets if and when the Federal Reserve decides to hike rates from record lows.
The top three utility funds areHennessy Gas Utility Investor ($1.6 billion in assets, with a 10.11% average annual return), $5.1 billionMFS Utilities (9.23%) and $5.2 billionFranklin Utilities (8.20%). This year though, Hennessy is down 6.36%. Some of its biggest positions are in oil transporters, which have had a tough time amid low crude- oil prices .
ButNiSource (NI), one of Hennessy's top holdings, is up 14% this year and has a dividend yield of 3.2%. The Indiana-based provider of gas and electricity services has a three-year earnings growth rate of 10%. But analysts expect full-year profit to slip 22% this year and 21% the next.
Two of Franklin's top utilities,Southern Co. (SO) andPPL Corp. (PPL), also make IBD's Utility Leaders screen. Southern, an Atlanta-based electricity provider, boasts slow but steady profit gains over the past five years. Analyst forecasts call for 1% EPS growth this year and 4% in '16. Its annual yield is 4.8%.
PPL, with a dividend yield of 4.6%, is a Pennsylvania-based electric utility. A spotty earnings track record results in a five-year earnings rate of -7%. The Street expects respective gains of 12% and 4% this year and next. PPL and Southern shares are both underwater for the year.
CGM Realty was a top real estate fund withan a 10-year average annual return of 9.96%. Its holdings include real estate investment trusts as well as homebuilders, hoteliers and a couple of big banks.
Dividend seekers often like REITs because they are required to pay out 90% of their income to shareholders as dividends. REITs must get 75% of their income from real estate.
One of CGM's holdings that's performed well this year isExtra Space Storage (EXR), a self-storage facility REIT. Shares are up 30% year-to-date and are working on a new flat base. The Salt Lake City-based company pays an annualized dividend of 3.1%.
Two of CGM's other REIT holdings,Ryman Hospitality Properties (RHP) andRLJ Lodging Trust (RLJ), boast an annual payout of 5.2% and 4.9%, respectively. Ryman is up 3% this year, while RLJ is down 19%.
Pimco Real Estate Real Return Strategy has an average 10-year return of 10.2%, andREMS Real Estate Value Opportunity has averaged 9.49%.Mid America Apartment Communities (MAA), one of REMS' top REIT holdings, offers a 3.7% annual payout and is up 12% this year.
Another,Sun Communities (SUI), yields 3.8%. Shares of the Michigan-based REIT have advanced 12%.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.