The Consumer Price Index (CPI) continued to cool down in June as the labor department on Wednesday announced a 3% rise in inflation over the last 12 months. This is the lowest point recorded since early 2021, giving Americans much-needed relief. The Producer Price Index just increased by 0.1% for the same period signifying that the economy had entered a disinflation phase.
Meanwhile, major indices like the S&P 500, the Nasdaq and the Dow have posted positive returns of 17.5%, 35.2%, and 3.8%, respectively, so far this year.
Inflation is gradually moving downward driven by easing prices for gasoline, airline fares, used cars and groceries. The Federal Reserve still holds its ambitious target of 2% long-term inflation.
In its drive to tame sticky inflation, the Fed is expected to remain hawkish as Chairman Jerome Powell reiterated the likelihood of two more quarter-basis-point hikes this year. Such a move would slow the economy and cool off the labor market. The payroll for June climbed by 209,000 while the unemployment rate fell to 3.6%, and average hourly wages rose by 4.4%.
After a pause in June from the aggressive rate hike cycle for 10 consecutive times, currently, the interest rate is in the range of 5-5.25%. By raising interest rates further, the Fed wants to cool off demand by making borrowing money more expensive. Currently, the borrowing cost is at a 16-year high which is impacting mortgages, auto loans, credit cards and business borrowing. Though the economy is still holding strong, many economists believe that further rate hikes could derail the economy and push it into a recession if the Fed fails to make a soft landing.
In such a critical time, investors who are looking for regular income and portfolio diversification can invest in the below-mentioned dividend-paying mutual funds.
Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have, thus, selected three mutual funds that have a promising dividend yield, have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000, and carry a low expense ratio as compared to its category average.
Invesco SteelPath MLP Income Fund MLPDX invests most of its assets, along with borrowings, if any, in master limited partnership issues that are engaged in industries like transportation, storage, processing, refining, marketing, exploration, production, and mining of minerals and natural resources. MLPDX advisors may also invest in derivatives and other instruments with similar economic characteristics.
Stuart Cartner has been the lead manager of MLPDX since Mar 30, 2010, and most of the fund’s holdings were in companies like MPLX LP (14.0%), Energy Transfer (13.9%) and Antero Midstream (8.2%) as of Feb 28, 2023.
MLPDX’s dividend yield is 7.8%. The fund’s 3-year and 5-year annualized returns are 34.4% and 8.0%, respectively. The annual expense ratio of 1.38% is lower than the category average of 1.56%. MLPDX has a Zacks Mutual Fund Rank #2.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Shelton Equity Income Fund EQTIX invests most of its assets, along with borrowings, if any, in common stocks of domestic companies that payout relatively higher dividends within the industry and have the potential for capital appreciation. EQTIX advisors choose to invest in equity securities of medium and large-cap companies.
Stephen C. Rogers has been the lead manager of EQTIX since Dec 30, 2003, and most of the fund’s holdings were in companies like Apple (2.5%), UnitedHealth Group (2.5%) and Microsoft (2.4%) as of Feb 28, 2023.
EQTIX’s dividend yield is 7.7%. The fund’s 3-year and 5-year annualized returns are 11.8% and 7.9%, respectively. The annual expense ratio of 0.71% is lower than the category average of 1.11%. EQTIX has a Zacks Mutual Fund Rank #1.
BlackRock High Equity Income Fund BMEAX invests most of its assets along with borrowings, if any, in equity securities and equity-related instruments, primarily of large-cap companies. BMEAX advisors also invest half of its net assets in equity-linked notes that provide exposure to equity securities and covered call options.
Tony DeSpirito has been the lead manager of BMEAX since Jun 12, 2017, and most of the fund’s holdings were in companies like Wells Fargo (2.4%), BP PLC (2.3%) and Komatsu (1.9%) as of Feb 28, 2023.
BMEAX’s dividend yield is 6.2%. The fund’s 3-year and 5-year annualized returns are 14.4% and 7.5%, respectively. The annual expense ratio of 1.10% is almost in line with the category average of 1.11%. BMEAX has a Zacks Mutual Fund Rank #1.
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