If you'd rather let a pro pick rising-dividend stocks, there are plenty of solid fund choices. Don't confuse rising-dividend funds with equity-income funds, utility funds or real estate funds, which typically fill up on stocks with fat yields. Rising-dividend funds invest in strong, steadily growing companies that boost their dividends each year -- or at least are capable of doing so. Here are our three favorite low-cost dividend-growth funds.
You'll find large helpings of financial, industrial and health-care companies in most rising-dividend funds. That's true of Fidelity Dividend Growth (symbol FDGFX; 800-343-3548), but this $17-billion no-load fund also contains racier non-dividend payers, such as Cisco Systems and Juniper Networks. That's because longtime manager Charles Magnum can invest in companies with the potential to pay dividends. Over the past decade to February 1, Magnum steered the fund to an annualized 9% return, an average of two percentage points more than the return of Standard & Poor's 500-stock index. The fund, which holds 100 stocks, charges 0.59% in yearly fees. That's well below average.
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A by-the-book rising-dividend fund is T. Rowe Price Dividend Growth (PRDGX; 800-638-5660). In addition to increasing dividends year after year, companies in this $872-million fund typically generate annual earnings growth of 8% to 10%. Manager Tom Huber, who has led the no-load fund since March 2000, invests in companies with reasonably priced stocks, talented executives and plenty of cash on hand. His 120-stock portfolio includes a healthy dose of midsize companies, such as industrial manufacturer Roper Industries, as well as foreign stocks, such as French spirits distributor Pernod. Since Huber took over, the fund has returned an annualized 6%, an average of five percentage points a year more than the S&P 500. The fund's annual expense ratio is 0.75%.
Among exchange-traded funds, iShares Dow Jones Select Dividend Index (DVY) stands out. Launched in November 2003, this ETF invests in a basket of 115 dividend-paying companies that have increased their dividends in each of the past five years. About two-thirds of assets are in financial and utility stocks, including top-ten holdings Bank of America and Pinnacle West. Select Dividend, which, like other ETFs, trades like a stock, returned an annualized 13% over the past three years, beating the S&P 500 by an average of three percentage points a year. The fund, which charges 0.40% a year for expenses, recently yielded an above-average 3.1%.