Investors can heave a sigh of relief as the Consumer Price Index data for the month of October showed signs of stabilizing. According to the data published by the Labor Department's Bureau of Labor Statistics on Nov 14, the CPI for the month of October remains unchanged from the previous month at 0.4% on a seasonally adjusted basis as Americans paid less for gasoline. The annual rise in underlying inflation was the smallest in two years. For 12 months through October, the CPI climbed 3.2% after rising 3.7% in September before seasonal adjustment.
It seems the Federal Reserve’s aggressive monetary policy tightening measures are successfully making their way through the economy and have brought down inflation form the peak of 9.1% in June 2022. In a series of 11 rate hikes between March 2022 and July 2023, the Fed has increased its overnight interest rate from a target range of 0.0-0.25% to 5.25-5.5%. The current interest rate is the highest since 2001. Fed Chair Jerome Powell continues to stress on a stable inflation rate of 2% in the long run.
The U.S economy remains strong backed by the revolution in tech sector due to artificial intelligence. Based on advance estimate, real gross domestic product (GDP) increased at an annual rate of 4.9% in the third quarter of 2023. The domestic labor market continues to show strength with the unemployment rate at a slightly changed 3.9%, payroll employment up 150,000 and real average hourly earnings for all employees up 0.2% from September to October. The Fed expects further easing of the labor markets.
Although inflation has cooled off, it is still half way from the Fed’s target. To win the inflation battle, the Fed has kept the door open for further rate hikes if necessary or can keep the interest rate higher for longer. The impact of a higher cost of borrowing due to a high interest rate by the Fed will affect the profitability of American corporates. Also, Moody's Investors Services on Nov 11 lowered its outlook on U.S. credit rating to "negative" from “stable," citing concerns over a very large fiscal deficit, which will significantly weaken debt affordability.
Escalating tensions in the Middle East due to the incessant war between Israel and the Palestine-based militant group Hamas has disrupted the global supply chain. Such events will impact corporate performance.
Since these events are unlikely to fade away soon, investors looking to diversify their portfolios and earn a regular income can choose dividend-paying mutual funds. Mutual funds, in general, reduce transaction costs and diversify their portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have, thus, selected five mutual funds that have a promising dividend yield, have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average.
Shelton Equity Income Fund EQTIX invests most of its assets along with borrowings, if any, in equity securities of medium and large-cap U.S. companies. EQTIX advisors invest mostly in companies that pay out relatively high dividends and have the potential for capital appreciation.
Stephen C. Rogers has been the lead manager of EQTIX since Dec 30, 2003, and most of the fund’s holdings are in Apple (3.0%), UnitedHealth (2.4%) and Broadcom (2.3%) as of May 31, 2023.
EQTIX’s dividend yield is 8.9%. The fund’s 3-year and 5-year annualized returns are 10.3% and 7.8%, respectively. The annual expense ratio of 0.71% is lower than the category average of 1.11%. EQTIX has a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category and other 1 and 2 Ranked Mutual Funds, please click here.
Invesco SteelPath MLP Income Fund MLPZX seeks total return by investing most of its assets, along with borrowings, if any, in master limited partnerships with companies that are engaged in transportation, storage, processing, refining, marketing, exploration, production, and mining of minerals and natural resources. MLPZX also invests in derivatives and other instruments that have similar economic characteristics.
Stuart Cartner has been the lead manager of MLPZX since Mar 30, 2010, and most of the fund’s holdings are in Energy Transfer (14.2%), MPLX LP (13.7%) and NuStar Energy (8.5%) as of May 31, 2023.
MLPZX’s dividend yield is 6.9%. The fund’s 3-year and 5-year annualized returns are 39.5% and 9.7%, respectively. The annual expense ratio of 1.13% is lower than the category average of 1.56%.
Bridges Investment Fund BRGIX invests most of its assets in a diversified portfolio of common stocks of domestic companies that its fund advisors believe to have the potential for increased earnings and dividends over time. BRGIX advisors also invest in U.S. dollar-denominated securities of foreign issuers and American Depositary Receipts traded on U.S. exchanges or over-the-counter markets.
Edson L. Bridges has been the lead manager of BRGIX since Apr 10, 1997, and most of the fund’s holdings are in companies like Apple (10.6%), Microsoft (8.8%) and Amazon.com (6.4%) as of Jun 30, 2023.
BRGIX’s dividend yield is 5.3%. The fund’s 3-year and 5-year annualized returns are 10.7% and 12.4%, respectively. The annual expense ratio of 0.75% is almost in line with the category average of 0.99%.
Madison Covered Call & Equity Income Fund MENYX invests most of its assets in common stocks of companies that its fund advisors believe are selling at a reasonable price in relation to their long-term earnings growth rates. MENYX advisors prefer to invest in large-capitalization companies with similar economic features.
Ray DiBernardo has been the lead manager of MENYX since Oct 29, 2009, and most of the fund’s holdings are in companies like Transocean (4.4%), Las Vegas Sands (3.4%) and CME Group (2.9%) as of Jul 31, 2023.
MENYX’s dividend yield is 6.6%. The fund’s 3-year and 5-year annualized returns are 13.3% and 9.7%, respectively. The annual expense ratio of 1.01% is lower than the category average of 1.11%. MENYX has a Zacks Mutual Fund Rank #1.
Recurrent MLP & Infrastructure RMLPX invest most of its assets along with borrowings, if any, in master limited partnerships with companies that are engaged energy infrastructure. RMLPX also invests a small portion of its net assets in securities of companies that operate in the energy sector or that hold energy assets.
Mark J. Laskin has been the lead manager of RMLPX since Oct 23, 2017, and most of the fund’s holdings are in Cenovus (7.3%), Energy Transfer (7%) and Plains GP Holdings (6.8%) as of Jul 31, 2023.
RMLPX’s dividend yield is 6.5%. The fund’s 3-year and 5-year annualized returns are 40.4% and 10.1%, respectively. The annual expense ratio of 1.09% is lower than the category average of 1.56%. RMLPX has a Zacks Mutual Fund Rank #2.
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