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Retire wealthy: three super funds for dividend investors

There are many benefits to investing with a focus on dividends. For starters, dividends can provide you with a second income stream and put you on the path to financial independence. Focusing on dividends can also prevent you from panicking over short-term market movements and help you stick to your long-term investment strategy.

Yet just because you’re interested in dividends doesn’t mean that you have to pick stocks yourself. There are many funds that pay investors a cash dividend on a regular basis. Here’s a look at three reputable dividend-paying funds I hold in high regard.

Franklin UK Rising Dividends Fund

The aim of this fund to provide investors with a growing level of income, along with some capital growth, in order to achieve a total return in excess of the FTSE All-Share Index over the medium-to-long term. Currently, it has a historic yield of 3.2% with income paid bi-annually. The top five holdings are Royal Dutch Shell, Diageo, Imperial Brands, RELX and GlaxoSmithKline.

What I like about this fund is that the portfolio manager has a specific focus on companies that are increasing their dividends. That’s an excellent long-term strategy in my view, as over time, dividend growth tends to generate capital growth too. The strategy appears to be working well, with the fund returning 58.5% for the five years to the end of July, vs 44.9% for the FTSE All-Share Index. With a net ongoing charge of just 0.55% through Hargreaves Lansdown, this fund could be a solid choice for UK dividend investors.

Threadneedle UK Equity Income Fund

For a more ‘vanilla’ dividend fund, check out Threadneedle UK Equity Income. This is included in Hargreaves Lansdown’s ‘Wealth 150+’ club, which is a selection of the broker’s favourite funds. It currently has a historic yield of 3.7%, paid quarterly, and the net ongoing charge is 0.68%.

The fund manager’s approach here is to maintain a core of large, high quality, dividend-paying companies, and then supplement these with out-of-favour higher-yielding stocks, or companies capable of strong growth and rapidly increasing dividends. Overall, the fund aims to achieve an above average rate of income combined with capital growth. For the five years to the end of August, it delivered annualised returns of a healthy 9.5%, vs 7.6% for the FTSE All Share. Top holdings are currently AstraZeneca, GlaxoSmithKline, Electrocomponents, WM Morrison Supermarkets and Imperial Brands.

Marlborough Multi Cap Income Fund

Lastly, for a more unique approach to dividend investing, take a look at this one from boutique investment manager Marlborough. It focuses on medium-sized and higher-risk smaller dividend-paying companies and as such, I believe it could be a great portfolio addition for those looking to diversify. Its historic yield is 4.4%, paid bi-annually. Fees are 0.64% through Hargreaves Lansdown.

The objective of this fund is to generate an attractive and growing level of dividend income in addition to long-term capital growth by investing in a diversified portfolio of equities. A glance at the portfolio reveals that it certainly is diversified – it currently has over 130 holdings, with the top ones being Polar Capital Holdings, Phoenix Group Holdings, Intermediate Capital Group, DS Smith and WH Smith.

Having returned 57.4% for the five years to the end of August, this fund has certainly delivered. I think it’s an excellent option for those seeking strong long-term total returns.

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Edward Sheldon owns shares in GlaxoSmithKline, Imperial Brands, Diageo, Royal Dutch Shell, DS Smith and has a position in the Marlborough Multi Cap Income Fund. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca, Diageo, DS Smith, Imperial Brands, RELX, and WH Smith. 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.