Dividend funds are experiencing a resurgence in popularity as investors look for an incentive to return to equity markets, according to the lead manager of the Royal Dividend Fund.

“There is renewed interest in dividend funds,” said John Kellett, Portfolio Manager of the Royal Dividend Fund since its inception. Investment Funds Institute of Canada data indicates that in 2002 the dividend and income category (8% of assets under management) comprised nearly 30% of total net sales of long-term funds.

“Dividends have always been essential to long-term portfolio growth, though many investors were mesmerized by capital gains and earnings growth during the heyday of the tech frenzy,” said Kellett. “It is worth remembering that over the past 200 years, 63% of the total return on the New York Stock Exchange has come from dividend yield.”

Since its inception in January 1993, the Royal Dividend Fund has outperformed the S&P/TSX Composite Total Return Index with less than half the volatility. For the 10-year period ended January 31, 2003, the fund produced an annual compounded rate of return of 13.1% while the Canadian market was up 9.1%.

The Royal Dividend Fund has outperformed the average Canadian dividend fund in eight of the past 10 years.

Kellett is supported by portfolio manager Shane Jones and together they share a combined 50 years of investment experience. Under their leadership, the fund has made distributions in 35 of the last 36 quarters.

Additionally, the fund has proven to be very tax-efficient with only one modest ($0.30 per unit) capital gains distribution in its 10 year history making it suitable as a core option for many investors outside an RRSP.