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New Manager Off to Good Start at Popular Dividend Fund

John Linehan, manager of the Bronze-rated T. Rowe Price Equity Income, has generated fine results since taking over for the retiring Brian Rogers in late 2015.

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T. Rowe Price Equity Income manager John Linehan has gotten off to a good start since taking over for the retiring Brian Rogers in late 2015. Despite changes on the margins, he's kept the fund's longtime strategy intact, providing consistency for shareholders. Below-average fees and strong analytical support contribute to a Morningstar Analyst Rating of Bronze.

Linehan has stayed true to the fund's mandate, investing in undervalued dividend payers. But unlike some equity-income funds, absolute yield is not the driver here: The potential for price appreciation and the quality of company management also matter. Indeed, Linehan sold longtime holding  AT&T (T) (previously a top-20 position under Rogers), showing he won't simply hold a name for its dividend.

That said, the fund's yield has ticked up a bit since Linehan took over. Some recent additions, such as  Ford Motor (F), sport healthy yields. The fund owns those alongside more-cyclical plays with more-anemic payouts, including  Applied Materials (AMAT), a top contributor thus far during his short tenure. In balancing the objectives of income and capital appreciation, the fund's yield won't look exceptionally high relative to some equity-income funds, but it will likely be above the S&P 500 over time.

Portfolio turnover has remained moderate (20% to 30%). Sector weightings haven't wildly changed, but Linehan upped the fund's stake in healthcare stocks, a lack of which had weighed heavily on performance during the past five years. (Rogers stayed light on healthcare because of regulatory concerns.) Meanwhile, he plans to keep cash below 4% of assets; an above-average stake had been a headwind in the post-2008 bull market under Rogers.

Linehan stress tests dividend stability, particularly in capital-intensive sectors such as energy. Cash flows and balance-sheet strength are even more important here than at former charge  T. Rowe Price Value (TRVLX), where he turned in solid results from 2003-09. His experience at that fund helps provide confidence here.

Katie Rushkewicz Reichart does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.