Dividend Growth Funds

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milosz19
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Joined: Thu Aug 16, 2018 12:56 pm

Dividend Growth Funds

Post by milosz19 » Sun Oct 21, 2018 11:34 am

Lately, I have been thinking of investing a part of my portfolio (10-15%) in a mulual fund that holds stocks with a history of increasing dividends (Dividend Growth by T. Rowe to be specific). My thinking is that these stocks are somewhat less volatile and the fund has lesser emphasis on tech as compared to S&P500; both characteristics strike me as highly desirable in volatile markets. In other words, such funds are rarely thrilling, but are performing well long term.

What do the Bogleheads think?

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nedsaid
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Re: Dividend Growth Funds

Post by nedsaid » Sun Oct 21, 2018 11:53 am

I think Dividend Growth is a good strategy. T Rowe Price is also a very good fund company. I don't think you can go too far wrong with this strategy and this fund but I wonder if this will beat the market in the future. Also keep in mind there are cheaper alternatives like Vanguard.
A fool and his money are good for business.

Tony-S
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Joined: Tue Sep 18, 2018 11:48 am

Re: Dividend Growth Funds

Post by Tony-S » Sun Oct 21, 2018 12:56 pm

milosz19 wrote:
Sun Oct 21, 2018 11:34 am
Lately, I have been thinking of investing a part of my portfolio (10-15%) in a mulual fund that holds stocks with a history of increasing dividends (Dividend Growth by T. Rowe to be specific). My thinking is that these stocks are somewhat less volatile and the fund has lesser emphasis on tech as compared to S&P500; both characteristics strike me as highly desirable in volatile markets. In other words, such funds are rarely thrilling, but are performing well long term.
Looking at performance since their inceptions in the early 1990s, Dividend Growth performed slightly better than TRP's S&P 500 Index fund, but the opposite is true when you take into account the 3x lower fee of the index fund. So, for tax-sheltered, they're probably a wash in return. However, if it's a taxable account I'd think the S&P 500 Index would be the better choice because of its tax efficiency.

Jack56
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Joined: Thu Jun 30, 2016 3:27 pm

Re: Dividend Growth Funds

Post by Jack56 » Sun Oct 21, 2018 4:23 pm

If as you think the dividend growth fund is less risky then its return should also be less. I am not aware of any theory that indicates that companies that grow their dividends have a better return than the market, adjusting for risk. Also Vanguard has several dividend growth funds that probably will perform about the same as the TRP fund with a lower fee structure.

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Dividend Growth Funds

Post by megabad » Sun Oct 21, 2018 4:29 pm

milosz19 wrote:
Sun Oct 21, 2018 11:34 am
Lately, I have been thinking of investing a part of my portfolio (10-15%) in a mulual fund that holds stocks with a history of increasing dividends (Dividend Growth by T. Rowe to be specific). My thinking is that these stocks are somewhat less volatile and the fund has lesser emphasis on tech as compared to S&P500; both characteristics strike me as highly desirable in volatile markets. In other words, such funds are rarely thrilling, but are performing well long term.

What do the Bogleheads think?
I would prefer to think of this as a tilt toward large value. Personally, I do not feel that large value will outperform the market over the long term so I do not tilt toward it. You may feel differently. I am 100% confident that one of us will be wrong, but have no clue which one. Thus I don't have large tilts (to anything).

Elysium
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Re: Dividend Growth Funds

Post by Elysium » Sun Oct 21, 2018 4:41 pm

Vanguard has Dividend Appreciation Index (VDAIX/VDADX) that invests in dividend growing companies, and also Dividend Growth (VDIGX) which is closed. They are slightly less volatile than the market / 500 index, and may or may not perform better on an absolute basis, although they should do well on a risk adjusted basis. There is some merit to holding lower volatility equity funds, especially closer to retirement or in retirement, because they allow you to sleep better and may even help with holding on for long term. I don't think they are the same as large value stocks though, but more like Quality companies. It will be interesting to compare the Vanguard Quality Factor fund with these. The high dividend yield / equity income funds are a different variety though, it is important to note the difference between dividend growth and high dividend yield. The latter could be less quality and probably more like large value.

RetiredCSProf
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Re: Dividend Growth Funds

Post by RetiredCSProf » Mon Oct 22, 2018 9:54 pm

I am currently invested ($10K each) in both the TRP Dividend Growth fund and TRP Capital Opportunity (mimics S&P 500 index) in my tax-deferred account. As you mentioned, Cap Opp has offered better returns, but Dividend Growth has been less volatile. This was especially noticeable over the past couple weeks, as the market took a downturn. Div Growth gives quarterly dividends.

FWIW, since March 31, 2018, my Dividend Growth fund has gained $460.10 (including dividends) and my Cap Opp fund has gained $450.02. So, basically, they reached the same point, but Cap Opp took more twists and turns to get there.

If you are looking for less volatility and preservation of capital, then a Dividend Growth fund may be a good choice.

Compared with the S&P 500 Index, TRP Div Growth is underweighted in the IT sector. It does not own Amazon or Netflix, as they do not pay dividends.

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nedsaid
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Re: Dividend Growth Funds

Post by nedsaid » Mon Oct 22, 2018 10:34 pm

It is a better time now to pursue a dividend strategy. Interest rates are rising and all that yield chasing that we saw in the aftermath of the 2008-2009 financial crisis is over. Valuations on such things as REITs, Low-Volatility Stocks, High Dividend, and Dividend Growth have all improved. Not ringing the bell yet and telling everyone it is fine to jump in, but it sure looks a lot better than a couple of years ago. Can't remember how many times I advised people to not chase yield and wait for a better time to pursue a dividend strategy. That time might be now but before I ring the bell, I want to see interest rates to go up a bit more.
A fool and his money are good for business.

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