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Top Dividend Paying Funds with High YTD Return

Abhijit Ghosh

Investment objectives often involve getting steady returns in the form of dividends. Particularly in times of volatility, regular dividends help to soften the blow of falling stock prices. Mutual fund itself is a great tool for alternative investment given its characteristics of diversification, liquidity and economies of scale among others. On top of it, mutual funds paying high dividends assure consistent stream of income opportunities; and thus are lucrative investment options. Thus, picking mutual funds with decent dividend yields and with relatively high year-to-date return is a prudent move.

Cushion from Volatility
After the record run in 2013; wherein the benchmarks kept hitting record highs on several instances, markets started this year on a very dismal note. Emerging market concerns, China’s dismal economic data and finally the Federal Reserve’s $10 billion cut to the economic stimulus dealt severe blows to the markets. In January, the blue-chip index plunged 5.3%, S&P 500 was down 3.6% and Nasdaq declined 1.7%. This was the blue-chip index’ worst start since 2009.

However, things turned remarkably well soon after and benchmarks ended higher in February. The Dow Jones jumped 4% in February while S&P 500 and Nasdaq scored gains of 4.3% and 5%, respectively. It was Nasdaq’s biggest monthly gain since September 2013. In March, the S&P 500 and the Dow rose 0.7% and 0.8%, respectively. However, the tech-heavy Nasdaq Composite Index dropped 2.5%; its worst performance since Oct 2012. For the first quarter of 2014, the benchmarks finished mixed. The S&P 500 and the Nasdaq composite Index gained 1.3% and 0.5%, respectively. However, the Dow lost 0.7%.

Again in April, the Dow and S&P gained 0.8% and 0.6%, respectively. However, intense selling pressure in bio-tech and Internet stocks dragged the Nasdaq down. The tech-heavy Nasdaq slipped 0.2%.

Volatility cannot be ruled out in near future as well. The Internet, biotech and high growth stocks are showing volatility of late. Also, the small-cap stocks have had a choppy run. The Russell 2000 Index showed some strength on certain occasions after declining for three consecutive days in mid May.

Dividend Paying Funds

Mutual funds holding income generating securities offer a convenient route to investors looking to hold a well diversified portfolio. Dividend paying mutual funds are one of the best diversified ways to boost portfolio returns. Also, it is often said that companies paying dividends are usually the matured firms and have a healthy financial structure. Dividends become a source of current income for investors.

Here we will pick 3 Zacks Mutual Fund Rank #1 (Strong Buy) funds that are paying high dividends and have high year-to-date return. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund.

PIMCO Convertible A (PACNX) seeks to provide maximum total return.  The fund invests a lion’s share of its assets in a basket of convertible securities. The fund may invest in investment-grade securities or junk bonds. However, a maximum of 20% will be invested in securities that are rated below B by Moody’s or with equivalent rating from S&P or Fitch.

The fund has a dividend yield of 15.66% and has returned 7.9% year to date.

PIMCO Real Estate Real Return Strategy A (PETAX) seeks to provide maximum real return.  The fund invests in real estate-linked derivative instruments and a basket of inflation-indexed securities to achieve its investment objective. It also invests in Fixed Income Instruments issued by domestic or foreign public and private sector entities.

The fund has a dividend yield of 8.34% and has returned 25.0% year to date.

Oppenheimer Rochester High Yield Municipal A (ORNAX) seeks to provide tax-free income. A lion’s share of its assets is invested in those securities whose income is exempt from federal income tax. The fund’s investment may be considered speculative and it invests in securities that are lower rated or below-investment-grade.

The fund has a dividend yield of 6.75% and has returned 11.23% year to date.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank.

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Read the analyst report on PACNX

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