Top Conservative Dividend Paying Mutual Funds

In the first & second quarters of 2011, the stock markets have been rallying with the Dow Jones Industrial Average (DJIA) peaking at 12,810 while the S&P 500 topped 1363 on April 29th, 2011. However most investors are still cautious as the economic recovery is still fragile & the pace of growth is slow. Also, concerns about excessive debts in European countries such as Greece, Portugal, Spain pose great risks to the markets. This could cause the Euro to weaken further causing the US dollar to rise, commodities & oil to plunge & the equity markets in general to go through a severe correction (5 to 10%). We at Best Dividend Paying Mutual think these risks are valid & do pose a great danger to investor's portfolios. For this reason, we will outline the top 5 conservative dividend paying mutual funds that also have bond allocations to limit downside losses in case of a huge market correction. If you read our article on Why to Invest in Dividend Paying Mutual Funds, you know that dividends act as a protector against downward bear markets when stocks across the entire market tumble.

i) American Century Equity Income (TWEIX)

This is a top performing mutual fund that has outperformed most of its peers since 2001. A $10,000 investment in this fund in 2001 would have grown to $18,749 as of May 2011, providing a total 87.5% return in 10 years. The fund currently yields 2.7% dividend and has $9.2 billion in assets under management. Managed by Phillip N. Davidson who started in Dec 31st, 1994, this fund seeks to invest even in slow growing businesses if they have steady profits to pay dividends. The fund's objective is to maximize dividend income & moderate capital growth by investing in large cap companies that are undervalued versus the whole stock market. Some of its top holdings include Exxon Mobil Corp, Bank of America, Annaly Capital Management, 3M Company and Johnson & Johnson. The fund's investing philosophy is to look for undervalued companies that have strong earnings, cash flows & assets that are not reflected in the company's stock price. The fund also has great diversification because it is spread out in multiple sectors including Financials, Healthcare, Consumer Staples, Energy & Utilities. The fund's total annual operating expenses is 0.97% which is conservative for an actively managed fund like this one. The top 10 holdings of the fund as of March 31st, 2011 were:

  • Exxon Mobil Corp. 3.9%
  • Bank of America Corp. (Convertible) 3.9%
  • Annaly Capital Management, Inc. (Convertible) 3.2%
  • 3M Co. 3.0%
  • Johnson & Johnson 2.9%
  • Total SA 2.9%
  • Procter & Gamble Co. (The) 2.8%
  • Consolidated Edison, Inc. 2.6%
  • Life Technologies Corp. (Convertible) 2.6%
  • United Parcel Service, Inc., Class B 2.5%


ii) Neuberger Berman Equity Income A (NBHAX)

The Neuberger Berman Equity Income is an initial 5.75% load mutual fund that yields 3.75% dividend and has $1.1 billion in assets under management. The fund seeks to maximize dividend income by limiting downward risks & maximizing upward momentum. The fund has strategic allocations among 4 sectors i.e. Real Estate Investment Trusts (REITS), convertible bonds, utilities & other high-yielding dividend stocks. I looked at the top 10 holdings of the fund and the other high-yielding stocks come from Healthcare & Pharmaceutical, Energy & Tobacco sectors. The top 10 holdings of the fund as of first quarter 2011 are:

  • Philip Morris International 2.2
  • Crescent Point Energy 2.1
  • Cenovus Energy 2.1
  • CenterPoint Energy 2.1
  • Blackrock Inc. 2.1
  • AMB Property 2.0
  • Unilever NV 1.9
  • Sanofi Aventis 1.9
  • Total SA 1.8
  • Foster's Group 1.8


iii) MainStay Epoch Global Equity Yield Fund (EPSPX)

The MainStay Epoch Global Equity Yield is an initial 5.50% initial sales charge mutual fund that seeks to provide a high level of dividend income with capital appreciation as a secondary objective. According to MorningStar, the fund currently yields a 2.45% dividend and has $640 million in assets under management. The fund invests in large cap international companies including those from UK, France, Switzerland, Germany, Canada, Belgium, Taiwan & Australia. The fund's top 10 holdings as of 1st Quarter 2011 were (see below). An initial $10,000 investment in August 2006 would have grown to $12,552 as of May 28th, 2011 representing a 25.5% return in 4 and 1/2 years.

  • Swisscom AG 2.0
  • Philip Morris International, Inc. 2.0
  • BCE, Inc. 1.8
  • Vodafone Group PLC 1.8
  • Pearson PLC 1.7
  • National Grid PLC 1.7
  • Imperial Tobacco Group PLC 1.7
  • Lorillard, Inc. 1.6
  • CenturyLink, Inc. 1.6
  • Nestle SA 1.6