3 top dividend funds for a Stocks and Shares ISA I’d buy today

Rupert Hargreaves highlights three of his favorite income funds for investors who want to build a well-diversified income portfolio in a hurry.

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In my opinion, every portfolio should contain a selection of dividend stocks.

Studies have shown that over the long term, dividends account for more than 50% of equity market returns. So, if you don’t have dividend exposure in your portfolio, you could be holding yourself back. 

With that in mind, today I’m going to outline my three top dividend funds for a Stocks and Shares ISA.

Income and growth

One of the best-rated income funds on the market at the moment is the TB Evenlode Income Fund.

Evenlode’s team is looking for stocks that can achieve both income and capital growth over the long term. They’ve carved out an impressive track record for themselves since 2014.

The fund has produced a cumulative return of 86% over the past five years compared to its benchmark, the UK All Companies Index return of 36%.

At the time of writing the fund supports an annual dividend yield of 3.1%. It charges 0.9% per annum in annual management fees and has around 10% of its assets invested outside the UK. This gives investors exposure to dividend stocks in Europe and the US, as well as here in the UK.

The top holding in the fund is Unilever, which accounts for 8.6% of assets under management.

International income

The Evenlode fund is predominantly invested in UK stocks. For a more international income stream, I’m going to recommend Artemis Global Income.

This offering has almost no exposure to UK stocks. At the end of July, just 2.7% of net assets were invested in UK equities.

The rest of the portfolio is invested around the world. US dividend stocks made up the bulk of the portfolio, accounting for around 39% of assets under management. US companies in the portfolio include General Motors and Citigroup. Chinese, French, and Israeli stocks all feature alongside these dividend stalwarts. 

Artemis’s global income offering currently supports a dividend yield of 3.3%. The annual management charge is 0.75%, which makes it cheaper than the UK focused dividend fund featured above. 

FTSE 100 dividends

My final dividend fund pick is investment trust Merchants (LSE: MRCH). Merchants’ investment universe is limited to blue-chip UK companies. At the end of August, 97% of the portfolio was invested in UK equities. The most significant holdings were GlaxoSmithKline and Royal Dutch Shell, which together accounted for just under 12% of assets under management.

Of all the three dividend funds featured in this article, Merchants supports the highest dividend yield. Shares in the trust currently offer a yield of 5.7%. In addition to this attractive level of income, the fund, which was first launched in 1889, charges an annual management fee of 0.35% the lowest of all the funds featured in this article. 

So, if you are looking for a cheap way to invest in some of the UK’s top dividend stocks, then this could be the perfect vehicle for you. It has outperformed its benchmark, the UK Equity Income Index by around 5% over the past five years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares in Unilever, Royal Dutch Shell and the Merchants Trust. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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