Your favorite Dividend Paying Funds

bee

Anyone have a list of dividend paying funds they recommend?

Fundamentals are more complex than they seem.

One of the simplest, yet most overlooked, stock market fundamentals is the dividend yield. Dividends are actual cash flows being paid out by corporations into the hands of investors.

You can’t fake, manipulate or fudge a dividend payment by hiring a talented CPA.

Dividends also happen to be one of the most resilient features of the stock market over the long-term.

A little bumpy at times but the real growth rate of 2.1% over the rate of inflation over the last 100 years is impressive.

That doesn’t sound like much but the inflation rate over this time frame was just shy of 3%. So nominal dividends have grown at an annual rate of roughly 5% since 1920.

the-best-source-of-investment-income/

LewisBraham

You can’t fake, manipulate or fudge a dividend payment by hiring a talented CPA.

Ask any fund manager about "return of capital" as a dividend and you'll see manipulation/fudging is exactly what can be done.

Old_Skeet

My all equity dividend paying funds that are found in the growth and income area of my portfolio follow. They are for my domestic equity sleeve: FDSAX with a yield of 3.95% ... IDIVX with a yield of 3.96% ... INUTX with a yield of 3.41% ... and, SVAAX with a yield of 4.44%. In my global equity sleeve the funds held are CWGIX with a yield of 1.92% ... DEQAX with a yield of 2.58% ... DWGAX with a yield of 2.18% ... and, EADIX with a yield of 3.76%.

The dividends paid by the above funds, by in large, were coded as qualified dividends on my 1099. The difference between qualified and ordinary dividends is quite substantial when the time comes to pay taxes. As the name implies, ordinary dividends are taxed as ordinary income, while qualified dividends are taxed at a lower rate.

I have other funds that are good dividend payers with most of them of the being hybrid type which pay out mostly ordinary dividends with some of the dividends being coded as qualified.

Overall, qualified dividends accounted for about 10% of my income with ordinary dividends accounting for 23%. With this, dividends account for about a third of my income. This is one of my reasons for adding to my qualified paying dividend funds during the recent stock market swoon and that was to grow the amount of qualified dividends that I receive.

Thus, the qualified dividends payers have become and are a part of my tax management and investing strategy.

msf

You can’t fake, manipulate or fudge a dividend payment by hiring a talented CPA.

No cash on hand? Pay a stock dividend, or perhaps better, pay it in scrip (IOUs).
https://www.accountingtools.com/articles/2017/5/16/types-of-dividends

No retained earnings? No problem. Pay a nimble dividend out of current earnings.

A few states—significantly, Delaware is one of them—permit dividends to be paid out of the net of current earnings and those of the immediately preceding year, both years taken as a single period, even if the balance sheet shows a negative earned surplus. Such dividends are known as nimble dividends.

https://saylordotorg.github.io/text_business-law-and-the-legal-environment-v1.0-a/s47-05-dividends.html

Lewis already addressed fudging at the fund level.

Though I do agree that you don't need an especially talented CPA for these maneuvers. This is all just Corporations 101.

davidrmoran

and he's a well-known high-level dude at ritholtz

bee

Old_Skeet said:

My all equity dividend paying funds that are found in the growth and income area of my portfolio follow. They are for my domestic equity sleeve: FDSAX with a yield of 3.95% ... IDIVX with a yield of 3.96% ... INUTX with a yield of 3.41% ... and, SVAAX with a yield of 4.44%. In my global equity sleeve the funds held are CWGIX with a yield of 1.92% ... DEQAX with a yield of 2.58% ... DWGAX with a yield of 2.18% ... and, EADIX with a yield of 3.76%.

The dividends paid by the above funds, by in large, were coded as qualified dividends on my broker provided 1099.

I have other funds that are good dividend payers but I consider them to be of the hybrid type.

Thanks for your list @Old_Skeet. A few of your funds are mentioned here (VHYAX (VYM) & VDADX (VIG) seem better tickers than the two mentioned in article):
best-8-funds-regular-dividend-income

bee

LewisBraham said:

You can’t fake, manipulate or fudge a dividend payment by hiring a talented CPA.

Ask any fund manager about "return of capital" as a dividend and you'll see manipulation/fudging is exactly what can be done.

Fidelity attempts to explain this non-dividend payout:
https://fidelity.com/learning-center/investment-products/closed-end-funds/return-of-capital-part-one

LewisBraham

Although it is more common in closed-end funds, return of capital also occurs in open-end ones:

https://investmentnews.com/funds-featuring-managed-payouts-off-to-rocky-start-19815

https://investornews.vanguard/updated-distribution-estimates-for-vanguard-managed-payout-fund-2/

https://investor.vanguard.com/mutual-funds/profile/distributions/vgsix

Crash

RPSIX is a bond fund, but with 15% in stocks. Monthly pay-outs. Yield right now is at 3.51%.

msf

LewisBraham said:

Although it is more common in closed-end funds, return of capital also occurs in open-end ones:

https://investmentnews.com/funds-featuring-managed-payouts-off-to-rocky-start-19815

https://investornews.vanguard/updated-distribution-estimates-for-vanguard-managed-payout-fund-2/

https://investor.vanguard.com/mutual-funds/profile/distributions/vgsix

Managed payout funds are explicitly designed to pay steady amounts, like annuities, except that they adjust their payouts periodically, typically annually. It's a nearly hopeless task, especially in a low and declining interest rate environment. Hence their return of capital. At least they are upfront about it.

Vanguard essentially conceded how difficult this is when it merged three managed payout funds into one. It gave up the ghost in February, when it announced that it was changing the div schedule on VPGDX from monthly to annual starting at the end of this month (May).
https://www.barrons.com/articles/vanguard-throws-in-the-towel-on-its-managed-payout-fund-51582939988

REIT funds are another odd sort of mutual fund. They invest in REITs which often make return of capital distributions. I'd guess that funds holding REITs just pass this through but I've never looked closely at how REIT funds handle distributions.

REITs depreciate their assets, which reduces net income. But because depreciation is a non-cash charge (and may not reflect the actual change in value of a REIT's property portfolio), the REIT's cash flow is usually higher than its taxable income. The difference is classified as ROC and is included in the distribution to unitholders.

https://www.theglobeandmail.com/globe-investor/investor-education/learning-to-roll-with-roc-can-pay-off/article24704378/

When funds make return of capital payments they file IRS Form 8937. Outside of REIT funds and managed payout funds, such payments should be pretty rare. You can see that in Vanguard's list of 8937 filings:
https://personal.vanguard.com/us/insights/taxcenter/form_8937

Likewise, infrequent for American Funds (the July 2016 entries are for fund reorgs, not ROC)
https://www.capitalgroup.com/individual/service-and-support/tax-center/form8937.html

T. Rowe Price seems to have around 3-4 funds each year with ROC
https://www.troweprice.com/personal-investing/planning-and-research/tax-planning/dividend-distributions/corporate-actions.html

Pimco seems to have around a dozen or so funds each year with ROC
https://www.pimco.com/en-us/resources/tax-center