UK Markets open in 4 hrs 3 mins

Two FTSE 100-beating dividend funds I’d buy for my ISA today

Edward Sheldon, CFA
A stock price graph showing growth over time

Whether your goal is to build up your wealth over the long term or generate passive income today, investing in dividend-paying companies can be a highly effective strategy. Yet what many people don’t realise is that you don’t necessarily have to invest in individual stocks yourself to capitalise on the power of dividends – there are plenty of funds and investment trusts that also pay their investors regular dividends.

With that in mind, today I want to highlight two dividend funds that I’d be happy to buy for my ISA now.

Evenlode Income

Evenlode Income is an under-the-radar dividend fund from West Oxfordshire-based, boutique investment firm Evenlode. It currently yields around 3% (paid quarterly) and is available on the Hargreaves Lansdown platform with an annual fee of 0.9%.

What I like about this particular fund is that portfolio managers Hugh Yarrow and Ben Peters follow a Warren Buffett-esque approach to investing, looking for high-quality businesses that have strong competitive positions and generate high returns on capital. They also look for companies that offer yield today, as well as the potential for dividend growth in the future. I see this as an excellent long-term strategy. Top holdings at 30 September were Unilever, RELX Group, Reckitt Benckiser, Sage and Diageo.

Another attribute of this fund that I like is that it has the flexibility to invest 20% of the portfolio in international stocks. This means that it has a larger investment universe than most other UK dividend funds. Given that there are plenty of fantastic dividend stocks listed overseas, I see this as a big advantage. 

Performance-wise, Evenlode Income has done very well in recent years. According to Hargreaves Lansdown, over three years the fund has returned 41%, while over five years it’s returned 81%. By contrast, the FTSE 100 has returned approximately 24% and 37% over three and five years respectively.

All things considered, I see this as one of the best dividend funds on the market today.

Franklin UK Rising Dividends

Another one that I rate very highly is Franklin Templeton’s UK Rising Dividends fund. It currently yields around 3.7% (paid bi-annually), and is available on Hargreaves Lansdown with a low fee of just 0.55% per year.

The objective of this fund is to outperform the FTSE All-Share index over a three to five-year period while also generating a growing level of income. Like Evenlode Income, it tends to invest in companies that offer yield today and the potential for dividend growth in the future. Top holdings at 30 September were Royal Dutch Shell, Diageo, Unilever, GlaxoSmithKline and RELX Group.

Looking at historical performance, Franklin UK Rising Dividends has a good track record. Over three years and five years, it has returned 27% and 54% respectively, meaning it has outperformed the FTSE 100 (quite comfortably over five years).

Given its performance track record and its low fee, I see it as a top option for those looking for a UK dividend fund.

More reading

Edward Sheldon owns shares in Unilever, Diageo, Sage, GlaxoSmithKline, Royal Dutch Shell, and has a position in the Franklin UK Rising Dividends fund. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, RELX, and Sage Group. 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.

Motley Fool UK 2019