Fund seeks income, growth and safety

This diversified mutual fund offers an attractive level of income from a portfolio of income-generating securities including dividend-paying equities and investment-grade bonds.

Dynamic Equity Income Fund (Fund codes: DYN206(FE), DYN216(LL), DYN7011(LL2), DYN316(DSC)) seeks to offer a stable monthly income stream, moderate capital appreciation and capital preservation.

The fund pays a decent monthly income. For each unit you own, it pays a distribution of $0.042. That works out to a yield of 3.5 per cent on the fund’s net asset value per unit of $14.54.

But while it offers decent income, the fund has gone considerably further than simply offering moderate capital appreciation. Among Canadian dividend and income equity funds, Dynamic Equity Income has performed in the top quartile in each of the past three-, five- and 10-year periods. For example, its 10-year compound annual growth rate of 10.0 per cent ranks in the top five per cent of the category.

Fund resembles a balanced offering

Though the fund is categorized as a Canadian dividend and income equity offering, Dynamic itself calls it a conservatively managed balanced fund. It invests in a diversified portfolio of income-generating securities including dividend-paying equities and investment-grade bonds.

Currently, the fund has about 49 per cent of its portfolio invested in equities, 36 per cent in fixed income, 13 per cent in cash and two per cent in alternative investments. This allocation certainly resembles the makeup of a balanced fund. Though we don’t typically recommend such funds, we’re prepared to make an exception in the case of Dynamic Equity Income, if only because of its strong long-term track record.

Yet the fund has other things going for it. These include experienced management in Oscar Belaiche, who has presided over the fund for nearly 17 years.

The fund is also geographically well diversified. Including fixed income and equity securities, it has 51 per cent of its assets invested in Canada, 34 per cent in the US and some investments in Europe.

Another feature of the fund that should appeal to conservative income investors is its relatively low volatility compared to the average fund in its category.

At 2.15 per cent, the fund’s management expense ratio may not be a bargain, but neither is it excessive in our view.

Dynamic Equity Income Fund is a buy for income, some growth and capital preservation if you can tolerate low to medium investment risk.

Dynamic’s top stock holdings

Dynamic has a high-quality stock portfolio. Among its top equity holdings is Comcast Corporation, the leading cable TV provider in the US. It also provides internet service and owns NBCUniversal and European pay-TV provider Sky plc. The stock yields just 1.8 per cent, but it has increased its dividend every year since it started paying one in 2008.

Investors in the fund may question why lower-yielding stocks are included in the fund’s portfolio. It’s because the distribution is not paid out of dividends alone. Its also consists of capital gains and returns on capital. The fund, therefore, needs some growth to maintain, or even increase, its net asset value.

Meanwhile, subscribers will be familiar with BCE, Fortis and Royal Bank, all of which are represented in the fund’s top-10 stocks. And while we don’t recommend Brookfield Asset Management itself, which is also among the top 10, we do recommend a number of securities in the Brookfield family.

This is an edited version of an article that was originally published for subscribers in the October 4, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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