Context is everything. For more than a year now, a handful of companies – some of which don't pay a dividend – have fueled gains in the stock market, leaving funds that don't hold those companies behind.
That goes a long way to explain why the T. Rowe Price Dividend Growth Fund (PRDGX) – a member of the Kiplinger 25, our favorite no-load mutual funds – has lagged the S&P 500 over the past 12 months.
The fund owns Microsoft (MSFT) and Apple (AAPL), but not Nvidia (NVDA), Alphabet (GOOGL) or Meta Platforms (META), three of the biggest gainers over the past year. "It's been a tough relative period for anyone who's an income-oriented investor," says the fund's manager, Tom Huber. "But on an absolute basis, the fund has done well." Dividend Growth has gained 16.3% over the past 12 months; the S&P 500, 21.5%.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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.
Increasing dividends matter more than yield at this fund. Huber favors large, competitively positioned firms that generate cash and have a goal to increase payouts over time. The fund's overall average dividend growth rate, 9.8% over the past 12 months, exceeds that of the S&P 500, which typically ranges between 5% and 7%, says Huber.
High interest rates have also been a hurdle for this dividend-stock fund; investors can earn fatter yields in money market funds. But rates are likely to fall in the coming months, which may turn investor attention toward dividend stocks again, says Huber.
Meanwhile, Huber is nibbling in discounted sectors, including consumer staples, energy and healthcare. Coca-Cola (KO) is a "quality company," he says, "that trades at a price-earnings multiple you haven't seen in a really long time."
And since the collapse of oil prices during COVID, many energy stocks, including Conoco-Phillips (COP), yielding 2.9%, and Exxon Mobil (XOM), yielding 3.2%, have become smarter about how they spend their extra cash. He's also a fan of discount retailer Dollar General (DG), which is benefiting from consumers seeking relief from higher prices.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related content
-
US-China Trade Hopes Send Stocks to New Highs: Stock Market TodayApple and Microsoft are on track to join Nvidia in the $4 trillion market cap club.
-
A Lesson From the School of Rock About the MarketsIt's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
US-China Trade Hopes Send Stocks to New Highs: Stock Market Today
Apple and Microsoft are on track to join Nvidia in the $4 trillion market cap club.
-
A Lesson From the School of Rock (and a Financial Adviser) as the Markets Go Around and Around
It's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
To Reap the Full Benefits of Tax-Loss Harvesting, Consider This Investment Strategist's StepsTax-loss harvesting can offer more advantages for investors than tax relief. Over the long term, it can potentially help you maintain a robust portfolio and build wealth.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
Dow Adds 472 Points After September CPI: Stock Market TodayIBM and Advanced Micro Devices created tailwinds for the main indexes after scoring a major quantum-computing win.
-
October Fed Meeting: Live Updates and CommentaryThe October Fed meeting is a key economic event, with Wall Street waiting to see what Fed Chair Powell & Co. will do about interest rates.
