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Generally I’d stay away from funds so labeled or named. Strategies vary and they can be a lot riskier than the name implies. One possible exception (perhaps not a “pure play” on that category) is VWINX. It is consistently praised by board members.
I use them. CDC and DIVO in my taxable account because most of dividend distributions are qualified. I am also currently holding FCPI in my Roth account as a hedge against inflation. This one may be a short term hold. However, in all cases I hold them because I like the composition of the portfolio's holdings and I see opportunity for capital gains as well. YMMV
@ Old -Joe. SCHD has a track record that goes back to 2011 if I am not mistaken. Not the oldest ETF out there but no longer brand new.
Maybe it replaced Schwab’s older income generation behemoth?
“Schwab YieldPlus - The theory behind ultrashort bond funds is astonishingly simple: Given the short durations of their holdings—six months is the average maturity—the funds should not lose much value even in tough times. Schwab, however, managed to pull off the seemingly impossible when YieldPlus lost an astounding 35.4 percent in 2008. The average ultrashort fund, meanwhile, lost just 7.9 percent that year. Unlike many of its peers, YieldPlus had heavy exposure to risky mortgage-backed securities that imploded during the downturn. "Schwab YieldPlus is one of the all-time great fund debacles," says Kinnel. "It was an ultrashort bond fund that they were pushing as an alternative to a money market fund. ... People expected that if it was going to lose any money, it was going to lose half of 1 percent or something."
Not saying the two funds are similar. In fact, “Schwab Yield Plus” (mutual fund) was marketed as a much more conservative fund than SCHB (ETF) - tantamount to a money market fund. I am just saying saying “be careful.” Things aren’t always what they seem. Most of the time increased return is associated with increased risk.
The oversea version of SCHD, which is SCHY, is only 2 years old. SCHD has a longer track record.
@yogibb provided a good list. Also CDC and VG Dividend Growth, VGIDX. It is a good idea to review the sectors invested that may reveal how the funds hold up this year relative to their benchmarks.
@ Hank. Yield plus was a hopped up money market alternative that blew up and led to law suits. Nothing to do with SCHD, dividend and div growth etf. SCHB is a broad market ETF. No connection whatsoever to SCHD,,, which is widely considered to be best in class.
@hank, Could you please explain why you say or feel this "Generally I’d stay away from funds so labeled or named. Strategies vary and they can be a lot riskier than the name implies."
Riskier? How?
Staying away from them or not is a personal decision so there's no need to go down that road unless it explains the risky aspect. I understand and I'm in agreement of 'high-yield' equity funds, those proclaiming 8-9-10% yields, but not the more generic funds like SCHD. TIA.
OLD ultra-short-term category disappeared after their collapse in 2008. They had relied on short-term HY in the belief - what could go wrong in 90-120 days. Plenty, it turned out - there was a credit freeze that made HY debt rollovers difficult and ST-HY got caught. Fido, Schwab, etc had such funds and they were discontinued - in fact, the whole category disappeared! Then a NEW ultra-short-term BUT INVESTMENT-GRADE category emerged after 2010 and some still CONFUSE the NEW ultra-ST with the OLD ultra-ST.
IMO, ST-HY and FR/BL (acts like ST-HY when rates don't go up) even today carry more risks than their holders realize. They can act well for quite a while, and then suddenly, whoosh!
On the other hand, high-yield/dividend stocks have NOTHING to do with the HY debt and there is NO CONNECTION at all between them (and funds such as VYM, SCHD, VEIPX, etc) and the old ultra-ST debacle of 2008. Of course, stocks are volatile in their own right.
”Generally I’d stay away from funds so labeled or named. Strategies vary and they can be a lot riskier than the name implies.”
@Mark - It’s not for me to tell people what they should or should not invest in. I was simply sharing my own personal view with the poster (ron) who I suspected did not understand the degree of risk some income oriented funds could present. I probably underestimated his degree of knowledge in that regard. Please note the words “can be” in my original comment. Please note the “I’d” which was clearly a reference to my own personal predisposition.
I’m not familiar with the entire universe of dividend paying funds but have closely followed a couple. Price’s PRFDX lost nearly 30% in a single quarter. (Qtr. 1, 2020). And the previously stable and “defensive”, DFND, has now fallen about 18% in fewer than 5 months this year.
*@ron - Please disregard my earlier remarks and defer to the wisdom of @Mark and the others who have had good results using this type of fund,
Just be sure what the fund holds before pulling the trigger. Folks see 'dividend' and think 'easy money' --- but make sure it's not something that's overly-concentrated in one or two sectors such as MLPs, REITs, or below-junk bonds.
Good morning all. I obviously misspoke above when I said that "SCHD... So far, so good. No real track record as of yet." I meant that I personally don't have a real feel for SCHD as of yet. Of course the ETF has a decent track record. Sorry for the sloppy language.
@Hank. Thanks for the buy signal. Happily I have been a shareholder since 2012. Also owned YIELD PLUS and was lucky enough to get out before it blew up.
useful in thinking about picking funds that pay dividends. My first reaction to the OP led to a suggestion that Free Cash Flow may be just as important a criterion in choosing funds that will pay a decent yield. Obviously the managers of a fund such as SCHD are well aware of this measure of a company’s financial health because without FCF no safe dividends can be paid. I have tilted my LCV and MCV allocations towards funds such as COWZ (which pays a quarterly dividend) and GQEPX and away from stalwarts such as VIG. I think CDC is worth considering as is DSTL. To be clear, my primary goal is not current income, and I reinvest all distributions. For an investor experienced in trading CEFs, some equity funds have adopted distribution plans that may pay out 6-8% on a quarterly schedule. HQL and BME are funds I have held. There are, of course, fixed income CEFs that can provide reliable yield; they don’t happen to fit my style of investing.
I generally like funds that pay some sort of dividend. The exceptions are for another thread. I am generally of the opinion that companies should pay something more for the use of my money than promises of future returns that I can only enjoy when I decide to sell.
Last time I read anything about dividends they were still a large part of historical returns on investing in the stock market. This despite the recent (30~40 year) fanfare for capital gains.
Needless to say that would-be investors should understand the underlying thesis of any active or "passive" fund they are looking at.
One of the things I like about SCHD--for example--is that its top ten sectors do not show a reliance on consumer durables, utilities, infrastructure, or REITS for its payout. I like to buy those sectors separately.
Like some other posters in this thread, I am also a fan of VDIGX, CDC, and VEIPX. Some other funds not mentioned previously include IHDG, FYLD, SYLD, PEY, and CSB.
Those are all types of equity funds. I have nothing to say about bonds.
One of the things I like about SCHD--for example--is that its top ten sectors do not show a reliance on consumer durables, utilities, infrastructure, or REITS for its payout. I like to buy those sectors separately.
That's precisely why SCHD is my largest ETF/OEF holding. I have other funds focused on those items, mostly CEFs but also some individual stocks.
The other point which hasn't been mentioned...in addition to the return remarkably close to that of the S&P 500, it also has 11.98% annual dividend growth over the last 5 years.
I've never seen a "dividend fund" with a K-1 but maybe there's one out there. There are entities such as MLP's and others which pay income/distributions and issue K-1"s but that's a whole different investment.
As @hank has noted dividend funds can come in many different styles, formats, make-ups, size and investment thesis. Know yourself so that you can make the best decision for yourself.
K-1 are for partnerships. In MLP, P is for partnership. Many commodity funds are also structured as partnerships (crude oil USO, dynamic commodities USCI, etc). REITs are typically not structures as partnerships, nor are listed dividend-stock funds.
K-1s do cause additional headaches in tax filings, so many avoid them and try to find funds that are not structured as partnerships but issue regular 1099.
Comments
PRDGX
TRGRX
TRREX
I'm not recommending them, but those are some that come to mind. I've been having more fun very recently with single-stocks, rather than funds.
Like Crash, I mainly use individual stocks for dividends, too.
“Schwab YieldPlus - The theory behind ultrashort bond funds is astonishingly simple: Given the short durations of their holdings—six months is the average maturity—the funds should not lose much value even in tough times. Schwab, however, managed to pull off the seemingly impossible when YieldPlus lost an astounding 35.4 percent in 2008. The average ultrashort fund, meanwhile, lost just 7.9 percent that year. Unlike many of its peers, YieldPlus had heavy exposure to risky mortgage-backed securities that imploded during the downturn. "Schwab YieldPlus is one of the all-time great fund debacles," says Kinnel. "It was an ultrashort bond fund that they were pushing as an alternative to a money market fund. ... People expected that if it was going to lose any money, it was going to lose half of 1 percent or something."
https://money.usnews.com/money/blogs/fund-observer/2009/12/30/the-decades-10-worst-fund-disasters
Not saying the two funds are similar. In fact, “Schwab Yield Plus” (mutual fund) was marketed as a much more conservative fund than SCHB (ETF) - tantamount to a money market fund. I am just saying saying “be careful.” Things aren’t always what they seem. Most of the time increased return is associated with increased risk.
@yogibb provided a good list. Also CDC and VG Dividend Growth, VGIDX. It is a good idea to review the sectors invested that may reveal how the funds hold up this year relative to their benchmarks.
Riskier? How?
Staying away from them or not is a personal decision so there's no need to go down that road unless it explains the risky aspect. I understand and I'm in agreement of 'high-yield' equity funds, those proclaiming 8-9-10% yields, but not the more generic funds like SCHD. TIA.
IMO, ST-HY and FR/BL (acts like ST-HY when rates don't go up) even today carry more risks than their holders realize. They can act well for quite a while, and then suddenly, whoosh!
On the other hand, high-yield/dividend stocks have NOTHING to do with the HY debt and there is NO CONNECTION at all between them (and funds such as VYM, SCHD, VEIPX, etc) and the old ultra-ST debacle of 2008. Of course, stocks are volatile in their own right.
I’m not familiar with the entire universe of dividend paying funds but have closely followed a couple. Price’s PRFDX lost nearly 30% in a single quarter. (Qtr. 1, 2020). And the previously stable and “defensive”, DFND, has now fallen about 18% in fewer than 5 months this year.
*@ron - Please disregard my earlier remarks and defer to the wisdom of @Mark and the others who have had good results using this type of fund,
https://www.investopedia.com/articles/investing/082015/3-biggest-misconceptions-dividend-stocks.asp
useful in thinking about picking funds that pay dividends. My first reaction to the OP led to a suggestion that Free Cash Flow may be just as important a criterion in choosing funds that will pay a decent yield. Obviously the managers of a fund such as SCHD are well aware of this measure of a company’s financial health because without FCF no safe dividends can be paid. I have tilted my LCV and MCV allocations towards funds such as COWZ (which pays a quarterly dividend) and GQEPX and away from stalwarts such as VIG. I think CDC is worth considering as is DSTL. To be clear, my primary goal is not current income, and I reinvest all distributions. For an investor experienced in trading CEFs, some equity funds have adopted distribution plans that may pay out 6-8% on a quarterly schedule. HQL and BME are funds I have held. There are, of course, fixed income CEFs that can provide reliable yield; they don’t happen to fit my style of investing.
Last time I read anything about dividends they were still a large part of historical returns on investing in the stock market. This despite the recent (30~40 year) fanfare for capital gains.
Needless to say that would-be investors should understand the underlying thesis of any active or "passive" fund they are looking at.
One of the things I like about SCHD--for example--is that its top ten sectors do not show a reliance on consumer durables, utilities, infrastructure, or REITS for its payout. I like to buy those sectors separately.
Like some other posters in this thread, I am also a fan of VDIGX, CDC, and VEIPX. Some other funds not mentioned previously include IHDG, FYLD, SYLD, PEY, and CSB.
Those are all types of equity funds. I have nothing to say about bonds.
The other point which hasn't been mentioned...in addition to the return remarkably close to that of the S&P 500, it also has 11.98% annual dividend growth over the last 5 years.
Sign me up for that.
Frankly I think that you need to do further research of your own on what constitutes a dividend fund and things to know about K-1's
As @hank has noted dividend funds can come in many different styles, formats, make-ups, size and investment thesis. Know yourself so that you can make the best decision for yourself.
K-1s do cause additional headaches in tax filings, so many avoid them and try to find funds that are not structured as partnerships but issue regular 1099.