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Dividend yield return and profit

Dividend Mutual Funds

Kiril Nikolaev May 17, 2016

Dividend mutual funds pay out a dividend at regular intervals to their fund holders. They hold a basket of equities that pay dividends, the exposure of which can be domestic, foreign, global, or a combination of different geographic regions. These funds can be actively or passively managed. Actively managed funds generally charge more fees, whereas passive ones usually track a dividend index and have lower fees.

4 Benefits of a Dividend Mutual Fund

  • Instant diversification of the basket of holdings in the fund, which lowers unsystematic risk.
  • The fund regularly rebalances to the appropriate allocation.
  • Simplicity of owning many holdings with one vehicle, which saves you time and commissions if you were to hold the individual holdings separately.
  • Access to active management expertise in many different funds.

Dividend mutual funds are for those investors who are looking to capture those mentioned benefits. Here are examples of some of the best dividend mutual funds:

  • Vanguard Dividend Growth Inv (VDIGX)
  • Invesco Dividend Income R5 (FSIUX)
  • T. Rowe Price Dividend Growth (PRDGX)
  • Invesco Diversified Dividend R5 (DDFIX)
  • Columbia Dividend Income Y (CDDYX)

Mutual funds typically have multiple share classes based on the investor group targeted, fees charged and minimum investment requirement.

Please note that we do not recommend the above dividend mutual funds. Rather we compiled a list of the top 5 dividend mutual funds based on several factors, such as:

  • Dividend reliability and increases over time
  • Dividend yield above 1%
  • Net income ratio higher than 1.5%
  • At least $100 million in managed assets
  • Diversification (Percent in top 10 holdings don’t exceed 30%)
  • Lower risk and volatility than average
  • Expense ratio no higher than 1.00%

Keep in mind that some dividend mutual funds may be closed to new investors (VDIGX for example). And some require large initial minimum investments (FSIUX for example).

Furthermore, please note that mutual funds may have different tax implications and liquidity than regular equities, so speak to a professional financial advisor first.

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