Investors’ confidence in the U.S. stock markets tends to gain from better-than-expected producer price index (PPI) and consumer price index (CPI) data, the key elements for the Federal Reserve to decide whether to start easing key interest rates in September. Investors also want to get rid of more than two decades of a high-interest rate situation imposed by the Fed to fight against inflation. Higher interest rates affect corporate profitability. 

The CPI for the month of July moderately rose by 0.2% after falling 0.1% in June, in line with economists' expectations. On a year-on-year basis, CPI rose 2.9% for the first time in nearly 3.5 years, inching close to the Fed’s ambitious target of 2%. The PPI for the month of July also edged up 0.1% against the street’s expectation of 0.2%.Over the past 12 months through July, the PPI increased 2.2% after climbing 2.7% in June. Tame CPI readings for the past three months, along with a mild rise in PPI last month, suggest that inflation was firmly back on a downward trend in Q2 of 2024.

Also, other favorable macroeconomic data, like the advance GDP growth rate estimates for Q2 have increased at an annual rate of 2.8% against the real GDP growth of 1.4% in Q1. The Services PMI expanded for the 47th time in 50 months to 51.4 in July. A reading above 50 indicates that the services sector economy is generally expanding. Retail sales in July also witnessed the largest increase since January 2023. Retail sales increased 1% in July after a downwardly revised 0.2% drop in June.

However, investors have been on the edge after the release of the Labor Department report for the week ended Aug 3, which stated that the number of Americans filing new applications for unemployment benefits fell 17,000 to a seasonally adjusted 233,000. The expected jump in the unemployment rate to a nearly three-year high of 4.3% in July sparked fears that the economy was either in recession or nearing a downturn.

In such a situation, where most macroeconomic factors have shown signs of improvement for the Federal Reserve to take an interest rate cut decision, uncertainty over the timing is causing volatility in the market.Investors looking to diversify their portfolios and earn a regular income may choose to invest in the below-mentioned dividend-paying mutual funds. These funds invest in companies that pay out regular dividends. Due to their well-established businesses and proven business models, these companies tend to remain profitable even in adverse economic situations, benefiting the performance of the fund.

Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have, thus, selected three mutual funds that have a promising dividend yield, have given impressive three-year and five-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000, and carry a low expense ratio of less than 1%. These funds have most of their exposure in sectors like technology, finance, energy, utilities and non-durable.

Shelton Equity Income Fund (EQTIX Quick QuoteEQTIX - Free Report) invests most of its assets, along with borrowings, if any, in domestic equity securities of companies that pay out a relatively high level of dividend income within the industry. EQTIX advisors generally invest in common stocks of large and medium capitalization U.S. companies.

Stephen C. Rogers has been the lead manager of EQTIX since Dec 31, 2003. Most of the fund’s holdings were in companies like Microsoft (2.3%), NVIDIA (2.3%) and Meta Platforms (2.2%) as of May 31, 2024.

EQTIX’s dividend yield is 8.5%. The fund’s 3-year and 5-year annualized returns are 7.6% and 10.9%, respectively. EQTIX has an annual expense ratio of 0.71%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Invesco SteelPath MLP Select 40 (MLPTX Quick QuoteMLPTX - Free Report) fund seeks total return by investing most of its assets, along with borrowings, if any, in master limited partnerships with companies that are engaged in transportation, storage, processing, refining, marketing, exploration, production, and mining of minerals and natural resources. MLPTX also invests in derivatives and other instruments that have similar economic characteristics.

Stuart Cartner has been the lead manager of MLPTX since Mar 31, 2010. Most of the fund’s holdings are in Energy Transfer (8.1%), MPLX LP (7.4%) and Western Midstream (6.1%) as of May 31, 2024.

MLPTX’s dividend yield is 5.6%. The fund’s 3-year and 5-year annualized returns are 22.9% and 12.1%, respectively. MLPTX has an annual expense ratio of 0.87%.

Franklin Templeton SMACS (FQTEX Quick QuoteFQTEX - Free Report) fund invests most of its net assets in common stocks and convertible securities, preferably in large-cap companies. FQTEX advisors also invest in foreign issuers either directly or through depositary receipts.

Edward D. Perks has been the lead manager of FQTEX since Jun 3, 2019. Most of the fund’s holdings are in companies like Merck (4.2%), Oracle (3.0%) and Shell (3.0%) as of Feb 29, 2024.

FQTEX’s dividend yield is 6.1%. The fund’s 3-year and 5-year annualized returns are 9.3% and 12.2%, respectively. FQTEX has an annual expense ratio of 0.12%.

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