Rising dividends can provide a hedge against inflation. One way to get exposure to dividend paying stocks with a solid dividend history is to use a dividend index mutual fund, or dividend index exchange traded fund.
In moderation, one or all of the five dividend income mutual funds below can be an appropriate addition to a retirement income portfolio.
What does it own: this fund owns the stocks that are called the dividend aristocrats; the 50 highest dividend yielding stocks listed in the S&P Composite 1500 Index which have increased dividends every year for at least 25 consecutive years.
Index this fund tracks: S&P 500 Dividend Aristocrats Index
What does it own? This dividend income fund owns stocks that have increased dividends in each of the previous 10 years. The stocks also have to meet trading volume and liquidity requirements. Currently about 140 stocks qualify and are included in this fund.
Index this fund tracks: Mergent Dividend Achievers Select Index.
The symbol VIG refers to Vanguard's exchange traded version of this fund. They also offer a regular mutual fund version, symbol VDAIX, the Vanguard Dividend Appreciation Fund Investor Shares.
What does it own? One hundred stocks which paid dividends in each of the previous five years, and have a three-month average daily trading volume of at least 200,000 shares. Stocks are screened for inclusion in the index by dividend yield, dividend-per-share growth rate, and dividend payout ratio.
Index this fund tracks: the Dow Jones U.S. Select Dividend Index
What does it own: Shares of preferred stock; the majority (about 85%) of the preferred shares of stock in this fund are issued by financial companies (banks and insurance companies.) Stocks included must have a market cap in excess of $100 million, volume in excess of 250,000 a day, and must have an indicated dividend. Currently about 213 stocks qualify and are owned by this fund.
Index this fund tracks: the S&P U.S. Preferred Stock Index
What does it own: Over 1000 U.S. stocks, weighted by dividend rather than by market cap, thus you proportionately own more of the stocks that pay the highest dividends. Read Wisdom Tree’s Investment Philosophy to learn why they think dividends are so important.
Index this fund tracks: the Wisdom Tree Dividend Index