Fund looks for steady income and growth
- Alan Lavine and Gail Liberman
In this day and age, it's always good to get some income as well as growth from your investment.
You might make more on the upside from a mutual fund that invests in companies with strong earnings growth rates. When earnings are growing, stock prices zoom higher. But as soon as earnings stop growing, stock prices get slammed. Many growth stock investors lost more than one-third of their money over the last three years.
Maybe it's better to look for a steadier investment. Large company stocks with good earnings outlooks often are knocked down in price. So you not only get some dividend income, but you also have a chance for stock price appreciation.
One fund that carries high ratings from both Lipper and Morningstar Inc., Chicago, is the Hartford Dividend and Growth Fund. This is a load fund. So you pay a commission. But the fee might be worth the price of admission.
Edward Bousa, the fund's manager, wants to own financially strong companies when they are out of favor. But the companies must show the ability to grow market share and sustain dividends. The fund, which yields over 2 percent, has outperformed the majority of its peers this year. It owns companies growing earnings at a steady 12 percent clip.
For example, Procter & Gamble is one of the fund's largest holdings. The company has been increasing its dividend annually for more than 47 years. In June, the company increased its dividend almost 8 percent. The company's earnings are growing at a solid rate of 10 percent annually.
"Dividend-paying companies are focused on returning cash to shareholders and meeting return on capital targets," Bousa says. "They are less likely to make poor business decisions."
In recent months, Bousa says he took profits in cyclical stocks. He put money to work in large telephone, telecommunications and health care companies. He increased his holdings in Verizon Communications, IBM and Pharmacia.
The fund is overweighted in material, industrial and utility stocks. High-yielding stocks, such as Avery Dennison, Procter & Gamble, Exelon and Wachovia, have contributed to the fund's relatively strong performance.
The fund has declined just -10 percent this year--half as much as the S&P 500. Over the past five years, the fund has outperformed the S&P 500, growing at about a 9 percent annual rate, compared with the S&P 500's 1 percent annual rate.
Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).
To read more columns, please visit the column archive.