Get Income From Equity Funds

7/21/2014


Yield hunters take notice: Some of the most attractive payouts — and growth opportunities — are found among stock funds.

Often, investors seeking income will look past stock funds and follow the traditional route of holding bonds. But with the primary trend unambiguously bullish under the Dow Theory, yield-hungry investors should consider stock funds offering both income and the potential for capital gains.

14 TOP EQUITY INCOME PICKS
Fund (Price; Ticker)
Est.
Yield
(%)
12-Mo.
Return
(%)
Exp.
Ratio
(%)
Fund
Rating
Category
First Trust Global Select Div.
($29; FGD) ETF
4.2
25.7
0.60
95
World stock
Guggenheim Russell Top 50
($137; XLG) ETF
2.0
17.3
0.20
73
Large-cap blend
Guggenheim S&P 500 Utilities
($73; RYU) ETF
2.9
15.1
0.40
83
Utilities
Vanguard Emerging Mkts.
($44; VWO) ETF
2.4
14.4
0.15
73
Emerging mkts.
Vanguard FTSE Dev. Mkt.
($42; VEA) ETF
3.1
16.5
0.09
97
Int'l large blend
Vanguard High Dividend Yld.
($26; VHDYX)
2.7
16.7
0.19
99
Large-cap value
Vanguard Managed Payout
($19; VPGDX)
4.0
13.1
0.34
93
Retirement inc.
Vanguard REIT Index ($76; VNQ) ETF
3.7
10.7
0.10
100
Real estate
Vanguard Wellesley Income
($26; VWINX)
3.1
9.8
0.25
98
Bal'd bond bias
Vanguard Wellington ($40; VWELX)
2.4
14.0
0.26
97
Bal'd stock bias
Wasatch Strategic Income
($13; WASIX)
2.7
26.4
0.95
94
Midcap blend
WisdomTree DEFA
($56; DWM) ETF
4.2
20.5
0.48
91
Int'l large value
WisdomTree MidCap Div.
($81; DON) ETF
2.2
20.6
0.38
99
Midcap value
WisdomTree SmallCap Div.
($69; DES) ETF
2.2
13.8
0.38
90
Small-cap value

We found standout equity income plays spanning 14 categories. All 14 pay dividends at least quarterly and yield more than the S&P 500 Index's 1.9%. In our fund-rating system, which now covers nearly 5,000 funds, they rank among the top one-third of their category. All 14 have expense ratios well below category averages. Three standouts are profiled below.

If you had to pick just one balanced fund to own, Vanguard Wellington ($40; VWELX) should be at the top of your list. Wellington opened to investors in 1929 and is the seventh-oldest U.S.-traded fund. An excellent all-weather holding, the portfolio is roughly 60% stocks and 40% bonds. Yielding 2.4%, the fund favors blue-chip stocks and investment-grade bonds. A 15-year annualized return of 7.3% ranks among the top 5% of its category. The fund, a member of our recommended portfolios, has an annual expense ratio of 0.26% and requires a minimum investment of $3,000.


Vanguard Managed Payout ($19; VPGDX) pays monthly distributions that attempt to keep pace with inflation, targeting 4% per year. In general, the sometimes-criticized "4% spending rule" offers retirees a good chance of maintaining a stable income stream over the 20 to 30 years of a typical retirement. The fund invests in eight other Vanguard offerings, including a total stock market portfolio (25%) and global minimum-volatility fund (20%). Yielding 4%, the fund may return capital as part of its payout. The initial minimum investment is $25,000.


WisdomTree SmallCap Dividend ($69; DES) offers a nice combination of low expenses (0.38%), attractive yield (2.2%), and solid track record. The exchange-traded fund (ETF) has sizable exposure to financials (25%) and industrials (18%). A five-year annualized return of 21.5% ranks among the top one-quarter of its category. The ETF has nearly $1.1 billion in assets.

OUR RECOMMENDED MUTUAL FUNDS
Through July 15, our Growth Portfolio has climbed 4.1% for the year, versus 6.0% for its benchmark portfolio. The Conservative Portfolio is up 4.2%, versus a gain of 5.2% for its benchmark.
Year-To-Date *
--- % Of Portfolio ---
 
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating †
Artisan International ($31; ARTIX)
2.4
C
9
9
100
Dreyfus Midcap Index ($39; PESPX)
5.8
C
0
0
51
Dreyfus Small Cap Stock Index
($30; DISSX)
0.4
D
0
0
92
Homestead Small Company
($37; HSCSX)
0.1
D
5
8
75
iShares MSCI EAFE Small-Cap ETF
($52; SCZ)
3.6
E
7
8
100
PIMCO Total Return ETF
($109; BOND)
4.2
A
6
0
NA
T. Rowe Price Divers. Small-Cap Growth
($25; PRDSX)
(0.4)
B
9
9
99
T. Rowe Price Value
($37; TRVLX)
9.1
A
10
11
89
Thompson Bond ($12; THOPX)
3.3
A
6
0
93
Vanguard 500 Index ($182; VFINX)
7.8
B
7
8
82
Vanguard Dividend Growth
($22; VDIGX)
5.2
E
10
10
69
Vanguard GNMA ($11; VFIIX)
4.0
A
0
0
97
Vanguard Growth Index
($51; VIGRX)
7.3
A
11
11
95
Vanguard High-Yield Corp. ($6; VWEHX)
4.7
C
5
6
93
Vanguard Inter.-Term Tax-Exempt
($14; VWITX)
4.5
B
0
0
88
Vanguard Selected Value
($30; VASVX)
7.2
C
7
10
96
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
1.6
B
0
0
99
Vanguard Total Bond Mkt. Index
($11; VBMFX)
3.6
D
0
0
46
Vanguard Wellesley Income
($26; VWINX)
6.0
A
0
0
98
Vanguard Wellington ($40; VWELX)
6.8
A
8
10
97

* Year-to-date ranks through JuLY 15 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%; E = bottom 20%.
† Fund ratings are percentile ranks based on our fund-rating system.


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