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18 Best Dividend-Stock Funds for 2022: Morningstar

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Related: 5 Best and 5 Worst Performing S&P 500 Index Funds: Morningstar

Everyone seems to like dividend-paying stocks.

Many retirees, to some extent, rely on the regular income that dividend stocks throw off. Nonretirees like the idea of collecting quarterly income from stocks while holding on for stock price appreciation. 

Susan Dziubinski, director of content at Morningstar.com, wrote in a recent blog post that dividends have historically been a key component of total returns, though that effect has been muted in recent years as low- and no-dividend-growth stocks have driven a large portion of market return.

She listed 18 funds and ETFs that focus on U.S. dividend-paying stocks, each with at least one share class that earns a Morningstar Analyst Rating of Silver or better, meaning Morningstar expects such highly rated funds to outperform over a full market cycle. 

‘Yield’ Funds vs. ‘Growth’ Funds

Dziubinski noted that not all dividend funds are alike; most on her list pursue one of two approaches to dividend-paying stocks. And neither strategy excels in every market climate, she said.

One group favors what Morningstar’s global director of passive strategies research, Ben Johnson, calls “yielders” — stocks whose yields are high in absolute terms. These companies are usually more mature businesses that choose to pay out profits rather than reinvest them. Yielders largely populate the financial, energy, utilities and industrial sectors. 

Such stocks come with alluring yields, but they carry some risk. Yielders in economically sensitive sectors may be vulnerable in an economic slowdown. 

They also face some interest-rate risk: When rates trend up, investors may swap high-income-producing stocks, especially in sectors such as real estate investment trusts and utilities, for bonds.

The other group of funds focuses on what Johnson calls the “growers” — companies that have increased their dividends over time. Growers typically do not boast robust yields as yielders do, though they have their advantages. 

Companies that regularly boost their dividends are usually profitable and financially healthy. As such, they generally exhibit some resilience during market downturns. 

Dividend-growth stocks can also provide some inflation protection. “Income-focused investors receive a little ‘raise’ when a company increases its dividend,” according to Christine Benz, Morningstar’s director of personal finance.

See the gallery for Morningstar analysts’ top 18 dividend-stock funds for 2022.