Vanguard Dividend Growth (symbol VDIGX), a member of the Kiplinger 25, was originally designed for aging baby-boomers who wanted a growing stream of income and the opportunity for capital appreciation. But manager Donald Kilbride says the stock market's 2007-09 implosion "scared the bejesus out of everybody" and so his fund, which invests in the stocks of high-quality companies that regularly boost their payouts, began attracting younger customers as well.
Complicating matters for managers like Kilbride is that the definition of “high quality” has changed. Financial companies used to be lumped in with producers of drugs, energy and consumer necessities as dependable dividend payers. But since the collapse of the financial sector in 2008, dividend-oriented investors have come to view that group as iffy, in part because it’s unclear how much capital regulators will require banks to retain.
Clearly, financials have lost their cachet as steady dividend stocks, so Kilbride has lightened up on them and had to look elsewhere to fill the dividend gap. Dividend Growth’s biggest sector overweighting is in industrial stocks, according to Morningstar, with nearly one-fourth of the fund’s assets in that broadly defined category. Among those holdings are Automatic Data Processing (ADP), the big payroll-processing firm and the fund’s largest position; General Dynamics (GD), the military contractor; and Lockheed Martin (LMT), another weaponry maker.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Dividend Growth also has a big bet on health care stocks, with 16% of its assets in that group, compared with 11% in Standard & Poor’s 500-stock index. The fund’s 11 biggest positions as of March 31 included Pfizer (PFE), Medtronic (MDT), Cardinal Health (CAH) and Johnson & Johnson (JNJ).
Big recent additions to the portfolio include retailer Target (TGT) and CVS Caremark (CVS), the drugstore and pharmacy benefits management company.
In general, Kilbride looks for companies with steady profit growth and executives who show that they’re committed to sharing their growing wealth with investors. Kilbride, who took over the fund in 2006, crunches the numbers to determine how much he thinks companies will pay out in five years, but he also tries to get inside the heads of executives to get a sense of their philosophy about dividends.
Given that Dividend Growth mainly holds stocks of big, U.S. companies, you’d expect it to closely track the S&P 500 index. However, over the past five years through May 19, a period that coincides with Kilbride’s tenure, the fund has thumped the S&P 500, returning 6.3% annualized, compared with 3.4% for the index. That performance was helped considerably by Dividend Growth’s performance in 2008, when it lost 25.6%, compared with the S&P 500’s plunge of 37.0%.
Although the fund focuses on dividends, don’t buy it thinking it will deliver high income. Its current yield is 2.1%, a shade above the overall market’s yield.
-
What Is a Qualified Charitable Distribution (QCD)?Tax Breaks A QCD can lower your tax bill while meeting your charitable giving goals in retirement. Here’s how.
-
Embracing Generative AI for Financial SuccessGenerative AI has the potential to reshape how we approach learning about and managing our personal finances.
-
The Kiplinger 25: Our Favorite No-Load Mutual FundsThe Kiplinger 25 The Kiplinger 25 is a list of our top no-load mutual funds that have proven capable of weathering any storm.
-
The 5 Best Actively Managed Fidelity Funds to Buy Nowmutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
-
The 12 Best Bear Market ETFs to Buy NowETFs Investors who are fearful about the more uncertainty in the new year can find plenty of protection among these bear market ETFs.
-
Don't Give Up on the Eurozonemutual funds As Europe’s economy (and stock markets) wobble, Janus Henderson European Focus Fund (HFETX) keeps its footing with a focus on large Europe-based multinationals.
-
Best Bond Funds to BuyInvesting for Income The best bond funds provide investors with income and stability – and are worthy additions to any well-balanced portfolio.
-
Vanguard Global ESG Select Stock Profits from ESG Leadersmutual funds Vanguard Global ESG Select Stock (VEIGX) favors firms with high standards for their businesses.
-
Kip ETF 20: What's In, What's Out and WhyKip ETF 20 The broad market has taken a major hit so far in 2022, sparking some tactical changes to Kiplinger's lineup of the best low-cost ETFs.
-
ETFs Are Now Mainstream. Here's Why They're So Appealing.Investing for Income ETFs offer investors broad diversification to their portfolios and at low costs to boot.
