Dividend-paying stocks may start to gain more attention from investors as the Federal Reserve cuts interest rates, but not all strategies are created equal. The Franklin Templeton Equity Income Fund (FISEX) focuses on finding income while investing in high-quality companies. The fund is rated four stars by Morningstar and is ranked in the top quintile when it comes to total returns so far this year and last, according to Morningstar . “We want companies that are leaders,” said Matt Quinlan, lead portfolio manager of the Franklin Equity Income strategy. That means “companies that are continuously investing, innovating, expanding … really just making their businesses more defensible and durable over time,” he added. The value fund has a 30-day SEC yield of 1.27% and a net expense ratio of 0.83%. It has a total return of 13.8% so far this year after scoring 18.0% in 2024, according to Morningstar. FISEX YTD mountain Franklin Equity Income Fund year to date To be sure, investors are still getting solid yields on money market funds. The annualized seven-day yield on the Crane 100 list of the 100 largest taxable money funds is currently 3.95%, down from the 5%-plus yields it enjoyed last year but still well above FISEX’s yield. But rates on money market funds and other short-term instruments are expected to fall as the Fed continues to lower the federal funds rate. The central bank cut that rate by 25 basis points — or 0.25 percentage point — at its September meeting and signaled the possibility of two more rate cuts this year. But dividend stocks offer the possibility of capital appreciation, something investors can’t get with money market funds, Quinlan pointed out. The fund offers “the ability to earn an attractive income stream and invest alongside market-leading companies,” he said. Quinlan and his team, including portfolio manager Alan Muschott and research analyst Daniel Nuckles, take a bottom-up approach when selecting investments. They lean on a team of about 35 analysts across seven sectors. In addition to investing in high-quality companies and oriented toward yield, Quinlan and his team also look to purposely bear less risk with lower volatility — and therefore, better risk-adjusted returns. While the team doesn’t focus on dividend growth while choosing assets, the companies selected tend to consistently increase their dividends. Franklin Templeton also has products that focus specifically on dividend growth: the Franklin Rising Dividends Fund and the recently launched Franklin Dividend Growth ETF (FRIZ). Thinking outside the box In an effort to boost yield and dampen volatility, Quinlan also incorporates equity-linked notes and convertible preferred securities in FISEX. Equity-linked notes, a debt instrument tied to an underlying stock, helps broaden his investment universe and allows access to companies he likes that have a smaller yield. They are capped at about 10% of the fund and currently sit at around 9%, Quinlan said. “What we do oftentimes is, we have a position in the underlying equity, and then we also have an equity-linked note position,” he said. “We think of it as a little bit of a hybrid position, and it’s a way for us to have a higher yield, a lower volatility, but still have great access to high-quality companies.” Convertible preferred securities are typically 3% to 5% of the portfolio, with the current weighting at the upper end of that range. They usually have maturities of three years and are more yield oriented, Quinlan noted. “These have yields oftentimes in the 6% range, and they’re stories where we really like the underlying equity, so it’s a way for us to earn an attractive income stream and participate in the upside of the underlying stock over time,” he said. Finding opportunity now There are two areas Quinlan where sees opportunities right now: financials and industrials. With the latter, he sees more spending on infrastructure projects, particularly as companies return operations to the United States. “We’re believers in the continued growth of people flying on planes, those types of things that will support the aerospace industry,” he said. Additionally, there are a lot of other industrial areas, “and obviously data centers [are] part of that.” Among the industrial names in the fund are Eaton and Parker-Hannifin . The financial sector has several tailwinds, including the increase in capital market activity, for banks with large businesses there, Quinlan said. In addition, the deregulation expected from the Trump administration will give a boost to the sector, he noted. “We’re also seeing some really good dividend growth,” Quinlan said, pointing to hikes over the summer in response to passing the Fed’s stress tests. “That’s because they’re growing and they’ve got a strong capital basis.” JPMorgan Chase and Morgan Stanley are the top two holdings in FISEX. (Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here .)
