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Rising Dividends Lift This Fund

Nellie S. Huang, Senior Associate Editor, Kiplinger's Personal Finance

Our all-weather dividend growth portfolio is standing up to the elements. Over the past 12 months through July 12, despite a sometimes-stormy market, T. Rowe Price Dividend Growth (symbol PRDGX), a member of the Kiplinger 25 outpaced Standard & Poor's 500-stock index by 6.4 percentage points with a 16.3% return. "Overall, across every sector, our stocks outperformed the market" over the period, says manager Tom Huber.

See Also: 11 Boring But Beautiful Dividend Stocks to Buy Now

Top performers include Ball, which makes aluminum cans and the popular glass canning jars. Shares have nearly doubled since July 2018, thanks to an increase in demand for its products. Shares of Air Products & Chemicals--a member of the Kiplinger Dividend 15, the list of our favorite dividend-paying stocks--are up 46.7%. The company is reaping the rewards of a broad corporate restructuring since 2013. And the stock of scientific instruments and diagnostic kits maker Danaher has rocketed 41.2%. According to Morningstar data, 70 of the fund's 108 holdings beat the S&P 500 over the past 12 months.

Huber focuses on large, sturdy companies with solid balance sheets that generate strong free cash flow (cash profits after capital expenditures) and have the capacity to consistently raise their payouts. "A company able to raise its dividend year in and year out typically has a durable earnings and cash flow stream that holds up better than your average business in times of stress," he says. In late 2018, Dividend Growth lost 15.1%, far less than the S&P 500's 19.4% drop. "We earn our keep in lower-return markets or down markets," says Huber.

The fund focuses on increasing payouts rather than on high yields. At the end of March, the stocks in Dividend Growth recorded an average dividend hike of 11%, says Huber, outpacing the 8% payout increase in the S&P 500. That's typical, he adds. Historically, Dividend Growth has yielded the same as the S&P 500, says Huber, but the fund's holdings have boosted their payouts at a pace that's about 2.0 to 2.5 percentage points faster, on average, than the stocks in the S&P 500.

Since Huber took over in March 2000, the fund has returned 7.9% annualized, compared with 5.7% annualized for the S&P 500.

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