Tips For How To Find Sweet Dividend Equities

BursaSnipers

Publish date: Sun, 22 Jul 2018, 04:55 PM

Using mutual funds to look for low-risk stocks with attractive yields

If you’re hunting for decent income from securities in this stilllow interest-rate environment — or you plan to seek good investment income once you retire — here’s an approach that can identify stocks that have performed well recently and are paying decent dividend yield. Their yields are good but not sky-high like yields from distressed stocks tend to be. Where can you find such stocks?

They are in the portfolios of currently successful dividend-oriented mutual funds.

Start by looking for dividend funds with the highest total returns over the past 12 months. You can do that with screening tools offered by large financial firms at websites like http://bit.ly/2NyZhTs.

Then narrow the field. Keep only those funds with $100 million or more in total assets. That way, you eliminate outliers that may temporarily be among the overall top performers, but whose investment approach is unproven. (It hasn’t been around long enough to amass $100 million). Worse, their investment approach may allow them to take risky steps that prevent them from growing assets.

Next, eliminate funds whose own overall yield is less than the S&P 500’s, which currently is 1.81%. Otherwise, you might as well simply invest in an S&P 500 ETF or mutual fund and save yourself the time it takes to hunt for something better. Also, a 1.81% yield is no great shakes.

After taking those steps, your investment income list includes only top-performing funds with stronger-than-average yields. You may want to use more than one online screening tool. It may help if you copy your results to a spreadsheet that lets you rank funds by name, returns or yield.

Your next step is to comb through holdings of the remaining funds. At least start your hunt with just top holdings. That way, you’re looking at stocks that dividend-oriented professional money managers like the most.

Constructing a search screen with those criteria, here are key traits of the 10 mutual funds with the best one-year returns that boast the highest yields. Total returns range from 9.28% up to 18.96%. The S&P 500 was up 16.49%, better than all but two of them.

The funds’ yields range from 1.84% to 3.44%. Three of them offer yields higher than 3%. Seven have yields above 2%.

You end up looking for stocks in funds that have mostly lagged the big-cap bogey in total return but have outperformed in yield.

What do these standout dividend funds’ top-holding stocks look like? Cherry-picking top-performing, top-yield stocks, your assortment includes China Petroleum & ChemicalSNP . It’s held by $345 million Matthews China Dividend FundMCDFX .

The China-based energy and chemical company is up about 32% this year and has a dividend yield of 8.3%. The S&P 500 is up about 6%.

Another stock highlighted by this approach is Cisco SystemsCSCO . It’s held by $155 million Voya US High Dividend Low VolatilityVHDIX .

The networking hardware and telecommunications gear giant is up about 13% this year and has a dividend yield of 3.1%.

How Pros Do It

For clients seeking investment income, Haverford Trust focuses on dividend-paying stocks. One of its strategies, similar to the approach outlined above in this report, seeks large caps whose dividend yield is higher than the S&P 500’s average.

Haverford’s second option focuses on companies whose dividends are growing.

“We offer two strategies because some people prefer owning higheryielding stocks,” said Hank Smith, Haverford’s co-chief investment officer. “For people looking more for total return, we put them into the quality growth strategy.”

Individual investors can zero in on rising dividend stocks. At the outset of your search, look for funds with the word “rising” in their name as well as “dividend” or “dividends.”

Smith cautions investors to beware of stocks viewed by most investors as bond proxies. In a risingrate environment like the present, their values can get clobbered.

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