Stellar fourth-quarter gains for U.S. stocks capped an exceptionally strong year in which several major indexes climbed to record highs. A strengthening economy helped equities shrug off a federal government shutdown and debt ceiling showdown in October. The Federal Reserve's mid-December announcement that it would begin to taper its asset purchase program in January was well received, with the Fed assuring investors that smaller purchases will provide appropriate stimulus. According to S&P Dow Jones Indices, net dividends increased $12.7 billion during the fourth quarter versus an $8.4 billion increase in the fourth quarter of 2012. Actual cash payouts rose 6% in the fourth quarter year-over-year and climbed 10% for the year. The average yield for dividend- paying stocks fell to 2.44% from 2.60% at the end of the prior quarter.
The Dividend Growth Fund returned 9.31% in the quarter compared with 10.51% for the S&P 500 Index and 9.52% for the Lipper Large-Cap Core Funds Index. For the 12 months ended December 31, 2013, the fund returned 30.35% versus 32.39% for the S&P 500 Index and 31.82% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 30.35%, 17.24%, and 7.86% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.67% as of its fiscal year ended December 31, 2012.
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Portfolio performance was positive across all sectors, with financials, consumer discretionary, and health care our top-performing sectors for the period. Telecommunication services, utilities, and consumer staples managed more modest gains. Financials remains our largest sector weight. Although the sector has rebounded strongly from the lows of the global financial crisis, valuations still appear reasonable by several key measures, and there is significant upside potential due to an improving U.S. economy and housing market strength. We believe health care is the most attractive of the traditionally defensive sectors, and we are seeking names that can generate consistently good growth and stand to benefit from growing demand as the economy recovers.
We remain reasonably optimistic about U.S. equities in 2014, but expect a slow growth environment. The housing market is gaining momentum and credit growth is rebounding. North American crude oil production is driving down energy costs, and the budget deficit has been largely resolved, at least for the near term. Since these factors bode well for U.S. companies, our portfolio is tilted toward cyclical growth to take advantage of market appreciation in an improving economy. While valuations have become somewhat stretched, equities are attractive relative to other asset classes and inflows should be steady. However, we would not be surprised to see a pullback after several months of gains and are mindful of potential risks, including elections in November and the execution of tapering by the Fed.