Dividend Funds Put Money in Your Pocket

Income seekers can turn to a growing number of funds that aim to deliver rising dividends. The funds follow a variety of strategies. Thornburg looks for companies with plenty of cash and track records for raising dividends. The portfolio includes a mix of cautious yield vehicles, such as blue-chip pharmaceuticals, as well as growing companies that are increasing their dividends at high rates. Holdings include Eli Lilly & Co.(LLY Quote), which yields 5.6%, and Entergy(ETR Quote), a utility that yields 3.8%.

Portfolio manager McMahon keeps about a third of his portfolio in foreign stocks. A big holding is Spanish telecommunications company Telefonica(TEF Quote), which yields 5.2%.

Foreign stocks typically pay higher yields than U.S. companies do. McMahon says foreigners have a long tradition of demanding richer dividend payouts. While the S&P 500 companies pay out about 30% of their earnings as dividends, many European markets have payouts of more than 50%.

Another income fund is Eaton Vance Dividend Builder(EVTMX Quote), which yields 3.5%. The fund has about a third of assets in utilities and much of the rest in consumer and industrial stocks that steadily raise dividends. A big holding is McDonald's(MCD Quote), which yields 3.5%. The hamburger giant had long paid a skimpy dividend, spending cash on opening new outlets. But in recent years, the company decided to slow down the expansion and reward shareholders with bigger dividends. During the past five years, the dividend has increased at an annual rate of 44%.

A year ago, Eaton Vance portfolio manager Judith Saryan had 45% of assets abroad, but lately she has lowered the figure to 25%. "In the past, we saw some of the best dividend opportunities overseas," says Saryan. "But now that valuations have come down, there is a slew of U.S. companies that are attractive, and we don't need to look overseas so much."