When investors talk about dividend stocks, the conversation typically centers on large-cap value stocks, such as Johnson & Johnson (JNJ) and JPMorgan Chase JPM.
But there are other places to search for good dividend stocks, too, says Russel Kinnel, director of manager research for Morningstar.
“When you look for a good dividend fund, remember not to put the cart before the horse,” he wrote in a commentary.
“You need a well-run strategy with low costs and strong return potential. If you narrow your search to funds that pass those tests, then it's ok to start looking for a decent yield. And you'll find some good ones outside of large value.”
Here are three choices he recommends:
Vanguard Small Cap Value Index Admiral fund
The fund (VSIAX) earns a rating of gold from Morningstar, its highest, and has a dividend yield of 2.12%. “Vanguard Small Cap Value Index is one of the best small-value funds available,” Morningstar analyst Ryan Jackson wrote in a commentary.
“Market-cap weighting, comprehensive turnover buffers, and a low fee should help it carve a durable long-term edge.” It has an expense ratio of just 0.07%, Kinnel notes.
The fund’s biggest holdings, as of May 31, were Marathon Oil (MRO), Constellation Energy (CEG) , Quanta Services (PWR), Molina Healthcare (MOH) and Bunge (BG).
Lazard Global Listed Infrastructure Open fund
The fund (GLFOX) has Morningstar’s silver rating, its second highest, and a dividend yield of 5.89%. The fund managers’ “insights are a cut above the competition,” Morningstar analyst Patricia Oey wrote in a commentary.
The fund seeks companies “with monopoly characteristics, long-life assets, and regulated returns, resulting in high revenue certainty and strong profitability,” she said.
“Meticulous research is conducted to uncover companies trading at a discount to the team’s estimate of intrinsic value.”
The fund’s biggest holdings, as of June 30, were U.K.-based National Grid (NGGTF) , Spain’s Ferrovial (FRRVY) , Italy’s Snam (SNMRY) , Norfolk Southern (NSC) and Pinnacle West Capital (PNW).
Matthews Asia Dividend Investor fund
Morningstar gives the fund (MAPIX) a silver rating. It has a dividend yield of 0.9%. The fund’s excellent investment team “makes its intrepid trek across Asian and Pacific markets worthwhile,” Morningstar analyst Robby Greengold wrote in a commentary.
The fund has a “unique dividend-driven strategy that has demonstrated its merits elsewhere,” he said.
“They make full use of their investment universe as they pursue attractively priced firms with clear dividend policies -- and commitment to growing their payouts--as well as strong cash flows, balance sheets, and franchises.”
The fund’s biggest holdings, as of June 30, were China’s Minth Group (MNTHY) , India’s Minda Industries, China’s Tencent (TCEHY) , Taiwan Semiconductor (TSM) and China’s Pharmaron Beijing.
