Large-cap, mainly value-oriented dividend stocks are the engine for one of the very few diversified stock mutual funds that is outperforming the broad market.
The $468 million BNY Mellon Income Stock Fund (BMIIX) is outperforming, although it was slightly in negative territory for the year, going into Wednesday.
And unlike many outperformers, it is part of a familiar name-brand fund complex.
Dividend Stocks
Its main focus on value stocks and on dividend stocks does not seem like a mere coincidence.
Historically, dividend stocks give shareholders a smoother ride, says Aniket Ullal, head of ETF data and analytics at CFRA Research. That calmer behavior is because companies that can consistently pay dividends tend to be financially healthier than most other enterprises, Ullal adds.
Here is what BNY Mellon Income Stock Fund's numbers look like. This year the fund is outperforming the broad market in the form of the S&P 500, -3.11% vs. -19.22%. The fund's large-cap value direct rivals tracked by Morningstar Direct are down 10.5% on average. The fund's Dow Jones U.S. Select Dividend Index bogey is down 1.6%, according to FactSet.
The fund's trailing 12-month yield is 1.65% vs. 1.41% for the S&P 500-hugging SPDR S&P 500 ETF.
So, the fund is giving shareholders a less bumpy ride through this pothole of a year. And it is doing so while providing slightly higher income than the large-cap market overall.
Income Stock Fund pays dividends monthly.
Higher-Yield Dividend Stocks
Among the fund's higher yielding dividend stocks are digital wireless service provider Vodafone Group ADRs, at 9.4%. Oil and gas explorer and producer Devon Energy has an 8.5% yield. ADRs for cigarette maker British American Tobacco pay a yield of 6.7%.
Dividend stocks in the portfolio with yields above 3.5% include pharmaceuticals firm AbbVie, International Game Technology and integrated energy giant Exxon Mobil.
Traits IBD Readers Seek
BNY Mellon Income Stock Fund held 53 stocks as of April 30. Adding to the fund's potential appeal to IBD readers, 17 of those 53 stocks happened to have IBD Composite Ratings of 90 or higher.
A Composite Rating of 90 means that a stock is in the top 10% of all stocks on a number of technical and fundamental factors, including both price performance and earnings. Watch for stocks that have 90-plus Composite Ratings and are forming bases or are in follow-on buy areas. That way, you spot the best-positioned stocks before they start big price runs. Look up a stock's Composite Rating at IBD Stock Checkup.
Seven of those holdings with 90+ Composite Ratings, plus another nine positions, also had IBD's SMR Rating (which measures Sales, profit Margins and Return on equity) of A. That scale runs A through E. An A score ranks in the top 20% of all stocks based on that gauge.
The fund's largest sector was financials, with a 28.46% weighting. Health care was second, at 19.43%. Third was energy, with an 11.74% weight. Utilities weighed in at 10.53%.
Specialty Insurance
Among those financials is Assurant. The insurer offers specialty property and consumer coverage.
Assurant shows how some dividend stocks can be valuable for their price appreciation.
Opening at 173 on Wednesday, Assurant was up nearly 12% so far this year. Still, it was about 11% off its mid-April 52-week high around 194.
The stock's dividend yield is 1.6%. Assurant had a 91 Composite Rating and a C SMR Rating.
UnitedHealth's Prognosis
Health-care holding UnitedHealth Group is evidence that the fund is open to buying growth stocks, even if its main focus is on value names. Over the past 10 years, UnitedHealth's 24.65% average annual gain is nearly double the S&P 500's 13.34%.
The company offers health-care coverage, benefits and technology services.
Trading around 508, shares were up 1.87% so far this year and fighting to regain the 8% they've lost off their 52-week high in April, which was about 553.
The company's dividend yield of 1.3% does not rank among the fund's top income-generating dividend stocks. But its yield is nonetheless close to the average for the broad market in the form of SPY.
Also, UnitedHealth Group is a recent member of IBD's Leaderboard. It has a 95 Composite Rating and an SMR Rating of B.
Leaderboard is IBD's curated list of leading stocks that stand out for their technical and fundamental prospects.
Among Dividend Stocks With Growth
Energy giant Exxon Mobil looks for, produces, transports and sells oil and gas.
Recently, the stock has proved itself to be a growth stock and among the top dividend stocks.
Trading around 92, the stock is up about 52% so far this year. But it's still about 13% off its 52-week high in June near 106.
This high-octane dividend stock has a Composite Rating of 99 and an SMR Rating of A.
Long-Term Prospects?
How will this fund fare if the market rotates back in favor of growth stocks? The fund's performance has been buoyed by its return over the past year. In that span it is ahead 6.34% vs. a 9.63% setback for the S&P 500.
It is also outperforming over the past 24 months. But it has slightly lagged over the past three and five years. With an inception date a little over six years ago, the fund's I-class shares lack a 10-year Morningstar track record.
The fund is subadvised by Newton Investment Management, an affiliate of BNY Mellon Investment Advisor. If you cannot access I-class shares, consider A-class (BMIAX) and C-class (BMISX) shares.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and actively run portfolios that consistently outperform and rank among the best mutual funds.
