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4 Dividend Paying Mutual Funds to Counter Market Volatility

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Wall Street, in recent days, has been subjected to bouts of volatility, with the broader S&P 500 index hovering near the bear territory.

So, what’s behind this broader selloff? The inflation level in the United States has been at more than twice the level the Federal Reserve wants it to be. The U.S. Bureau of Economic Analysis (BEA) reported that the Personal Consumption Expenditures index, the Fed’s favorite inflation gauge, rose 5.2% year over year in March against the central bank’s stated target of 2%.

The Consumer Price Index and the Producer Price Index came down from their decade-high levels in March to 8.1% and 11% year over year, respectively, in April, as reported by the U.S. Bureau of Labor Statistics.

The general impression is that even though inflation may have already peaked by March, it still remains at an alarmingly high level. The Fed, in its bid to tackle inflation, has promised and started implementing interest rate hikes in an aggressive manner, raising concerns about a recession in the near term and denting investors’ sentiment.

When the central bank hikes interest rates, it impacts purchasing power, something that doesn’t bode well for the economy. Talking about the economy, BEA reported that U.S. GDP declined 1.4% year over year in the first quarter. Now, with economic growth in poor shape and elevated inflation, the U.S. economy faces the risk of stagflation, resulting in stock market gyrations.

To put things into perspective, when the U.S. economy faced stagflation toward the end of Richard Nixon’s presidency, the S&P 500 fell roughly 17% and 30% in 1973 and 1974, respectively, as mentioned in a Forbes article. Consequently, growth-oriented tech stocks have seen a massive selloff recently as investors opted for a low-risk portfolio.

Global issues have also impacted the U.S. stock market. The Russia-Ukraine War has led to worries among investors because of the global supply-chain disruptions. Such disruptions have affected companies such as Tesla, Inc. (TSLA - Free Report) and Apple Inc. (AAPL - Free Report) . China, in the meantime, has prioritized COVID-19 measures and saw its GDP fall 0.68% from a year ago in April. Often called the manufacturing capital of the world, China’s economic woes and wide-spread lockdown affected stock markets across the globe.

In these turbulent times, companies that offer dividend become highly lucrative options for investors looking to make money at relatively low risk. These companies are in a position to offer dividend because they have a sustainable business model, which is not heavily impacted by market downturns, and usually come out of bearish markets relatively unscathed.

Dividend mutual funds may look even more attractive as commission rates and brokerages in such funds are usually less than in stocks. Also, if one is looking for stability in companies offering dividends, there is nothing better than a fund made up of many such companies, thus hedging your risk. (Read More)

We have selected four such mutual funds that offer 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.

Shelton Equity Income Fund Direct Shares (EQTIX - Free Report) seeks to achieve a high level of income and capital appreciation by investing mainly in income-generating U.S. equity securities. EQTIX invests the majority of its total assets in common stocks.

Barry C. Martin has been the lead manager of EQTIX since Dec 31, 2017, and most of the fund’s exposure is in sectors such as technology, finance and retail trade.

EQTIX’s dividend yield is 9%. The fund’s 3-year and 5-year annualized returns are 9.6% and 8.1%, respectively. Annual expense ratio of 0.74% is lower than the category average of 0.94%. EQTIX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

A.B. Global Risk Allocation Fund Class I (CABIX - Free Report) seeks total return consistent with reasonable risks through income-generation and long-term growth of capital.

Daniel J. Loewy has been the lead manager of CABIX since Feb 9, 2016, and most of the fund’s exposure is in sectors such as technology and finance.

CABIX’s dividend yield is 9.6%. The fund’s 3-year and 5-year annualized returns are 8.4% and 6.7%, respectively. The annual expense ratio of 0.99% is lower than the category average of 1.29%. CABIX has a Zacks Mutual Fund Rank #1.

New Covenant Balanced Income Fund (NCBIX - Free Report) seeks current income and long-term capital growth. NCBIX invests mainly in shares of New Covenant Growth Fund and New Covenant Income Fund, focusing on the latter.

Richard A. Bamford has been the lead manager of NCBIX since Oct 30, 2017, and most of the fund’s exposure is in the financial sector.

NCBIX’s dividend yield is 5.8%. The fund’s 3-year and 5-year annualized returns are 6.2% and 5.9%, respectively. The annual expense ratio of 0.15% is lower than the category average of 0.72%. NCBIX has a Zacks Mutual Fund Rank #1.

Cohen & Steers Real Assets Fund Inc Class Z (RAPZX - Free Report) seeks to increase total returns over the long term and maximize real returns in inflationary markets. RAPZX allocates the majority of its net assets to U.S. and non-U.S. investments.

Vincent Childers has been the lead manager of RAPZX since Aug 11, 2013, and most of the fund’s exposure is in sectors such as finance and industrial cyclical.

RAPZX’s dividend yield is 7%. The fund’s 3-year and 5-year annualized returns are 12.2% and 8.7%, respectively. The annual expense ratio of 0.80% is lower than the category average of 1%. RAPZX has a Zacks Mutual Fund Rank #1.

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