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Analysis: Like other dividend funds, the TD Dividend Growth Fund seeks to provide a high level of after-tax income and steady growth. To achieve this investment, the management team of Doug Warwick and Michael Lough screen the universe of dividend-paying stocks and ranks them based on a number of fundamental criteria that include market cap, earnings growth, and dividend yield. Once the least desirable stocks have been weeded out, the team conducts a more detailed fundamental analysis on the remaining names.

The end result is a portfolio that is made up of 60 to 80 large cap, dividend-paying stocks. The fund is very concentrated, with the top 10 holdings making up nearly 70% of the fund as of April 30. The fund is also very concentrated from a sector perspective, holding more than half of the fund in financial services. In comparison, the S&P/TSX Composite Index has only 32% exposure to financial services. This high exposure to financials is a big reason that the dividend yield on the underlying portfolio is significantly higher than the broader market.

The managers are extremely patient in implementing their investment process. Portfolio turnover has been very low, in fact almost nonexistent, averaging a mere 1.4% between 2006 and 2010.

Recent performance has been largely in the middle of the pack after many years of top-quartile returns. Volatility has been higher than the category average for dividend funds, but lower than the broader S&P/TSX Composite Index. Costs are reasonable, with an MER of 2.03%, which is just below the category average.

On balance, this isn’t a bad fund. Given the emphasis on yield, we would expect it will to hold its value relatively well in a volatile or falling market environment, but likely to lag in a rising market. You could do a lot worse than this fund, but you could also do better.

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, a monthly commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

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Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated.