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The Franklin Rising Dividend Fund (FRDPX) is one of those dividend funds that is well worth investigating further if you are looking for a quality dividend fund that is taking a decent gamble on the future of the domestic economy. The Franklin fund has taken a definite position in a recovery and provided that long awaited recovery happens, this dividend fund should be expected to behave more like a growth fund.

But first, looking at this as a dividend fund, investors might not find themselves all that impressed with the 0.42% dividend yield earned within the fund. This is one of the beefs that we have with dividend funds; people looking to boost income without bonds need to look elsewhere than traditional dividend funds. This is where growth funds, value funds and some small caps can impress a lot of people.

In talking about the investment style, consider tha this actively managed mutual fund has swung between value, blend and growth styles quite a bit over the years (while always remaining true and loyal to large cap holdings). With such active management, one might expect returns to suffer, but the Frankling Rising Dividend Fund has always outperformed the category and index. Always. YTD, its 2.58% return is roughly 7% better than the index. No easy task for sure.

Part of positive returns will come down to its top holdings. One thing that the Franklin Rising Dividend Fund does well is letting its winners run while trimming its losers (turnover is reported at 23%). Its largest holding, Family Dollar Stores has enjoyed a YTD return of 56% and this security represents 5.35% of the total portfolio (the biggest earner and biggest holding).

As for sector weightings, this dividend fund holds an aggressive position in the Industrial Materials sector (26.33%) which is more than double the weighting of other funds in this category. Next up is Healthcare at 23.05%, also more than double the size of the fund’s competitors. The third largest holding is Consumer Goods at 15.32% (to which Family Dollar Stores belongs), where the fund is about 50% more heavily invested compared to its peers.

Interestingly, the fund has completely shunned Energy and Utility companies, something a lot of others will not do purely for the defensive nature of such securities and the dividends they yield. Likewise, Financial Services is underweight compared to the category, another surprise given that such firms actually pay dividends (although not so much so at the large cap level).

Top Holdings

With Family Dollar Stores as its top holding, the fund has done quite well. However, they have been reducing their exposure which we see as a prudent move, particularly if the economy starts to rebound, which is something that this fund’s holdings seem to suggest.

Other top holdings worth noting are Abbott Laboratories which represents a 5% weighting and one that the fund is actively purchasing. As a healthcare company that has its hands in a variety of different aspects (including diagnostics, nutrition, etc.), Abbott should be expected to be a solid performer (it currently trades between its 52-week high and low), even though it has returned negatively for the fund on a YTD basis.

Another company we like to see in steady mutual funds is Wal-Mart, which represents almost 5% of the fund’s total exposure. While Wal-Mart has returned negative returns for the fund on a YTD basis, it continues to pay a dividend and like Family Dollar Stores will appeal to consumers at any stage of the economic cycle.

With so much holdings in manufacturing, this dividend fund appears well positioned to enjoy the benefits of a strong economic recovery. Despite its shifting holdings from one category or investment style to another, this dividend fund has performed better than both the index and category against which it is measured.

What makes the Mutual Fund Site a little uncomfortable with this fund is whether it can maintain its momentum should the economic recovery take longer than what is expected. By shifting out of winners and take such an apparent position in economic-focused sectors, is the fund still going to be defensive enough to weather future storms? That is left to be seen, but it certainly has a strong track record (as far out as 10 years) to suggest that it will.