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If you're an investor in search of yield, recent years have not been kind to you. With interest rates at historical lows, folks are having a hard time squeezing any meaningful income out of their investments. While you don't want to go out too far on a limb in search of higher yields, there are some steps you can take to boost your portfolio's income-producing properties.
In this four-part series, I'll shine a spotlight on some of the best income-producing actively managed stock funds, exchange-traded funds, and bond funds in the business. While yield is a primary consideration in my analysis, it's not the only one -- I also want investments with strong long-term growth potential and solid management in charge. To kick off this series, let's turn to two stock-centered active mutual funds with serious income potential.
Vanguard Equity-Income (VEIPX)
This stock fund utilizes a mix of fundamental and quantitative analysis to identify attractively priced, high-dividend-yielding stocks. Investment manager Wellington Management runs roughly 60% of the portfolio and focuses on high-quality companies with strong underlying businesses. The remaining 40% of the fund is run by Vanguard's own quantitative group and relies on computer models to pick reliable income-producers.
The resulting portfolio is a well-diversified mix of roughly 150 high-quality blue chip names. Recent additions to the portfolio include Lowe's, ConAgra Foods, and electric utility firm NiSource (NYSE: NI ) , whose yields range from 2.1% in the case of Lowe's to 4% for NiSource.
Like many high-quality, value-oriented funds, Vanguard Equity-Income is built to hold up better in times of market turmoil, besting the S&P 500 by more than 6 percentage points in 2008's bear market. And while the fund won't dazzle in years when more speculative investments hold sway, such as in 2009, the portfolio's long-term track record is first-rate. In the past decade and a half, the fund has generated an annualized 7% return versus 5.5% for the S&P 500 Index. This showing puts the fund ahead of 86% of all large-cap value funds in the Morningstar fund universe. Over the most recent 12-month period, the fund's trailing yield was a reasonable 2.72%.
That won't make anyone rich overnight, but when combined with the long-term capital appreciation the portfolio has managed to produce, investors should be quite happy here. The cherry on top of this well-run fund is its low 0.31% expense ratio, making it a solid choice for price-conscious, yield-seeking stock investors.
Vanguard Wellington (VWELX)
Wellington is actually a balanced fund, investing in a mix of stocks and bonds, so investors in search of yield would do well to give this one a second look. This fund is run entirely by the aforementioned Wellington Management, which devotes approximately 65% of assets to equities and the remaining 35% to bonds.
Not only does this balanced approach dampen volatility and reduce risk by adding bonds into the mix, it gives the fund's yield -- 2.92% at last glance -- a boost. On the stock side, management looks for dividend-paying large-cap names that are temporarily undervalued but still boast strong business models and solid long-term growth prospects. The bond portion of the portfolio sticks primarily to investment-grade corporate bonds, which adds yield and return potential without bumping up risk.
Right now, financials and health-care stocks are getting a lot of play in the fund. For instance, management favors industry leaders Pfizer (NYSE: PFE ) and Merck (NYSE: MRK ) for their attractive yields and relatively untapped pricing power.
With its low-risk profile, Vanguard Wellington has made mincemeat out of the vast majority of other balanced and moderate allocation funds -- over the most recent 15-year trailing time period, the fund ranks in the top 7% of its peer group with a 7.7% annualized gain. This fund isn't made for speed, but it is built for the long haul and should continue to provide investors with the trifecta of investing goals -- long-term capital gains, dividend income, and low volatility. For a rock-bottom 0.30% price tag, you won't do much better than Vanguard Wellington.
Stay tuned for the next installment in this series, where we'll take a look at some of the best high-yielding exchange-traded funds for your portfolio.
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