Dividend funds can be used effectively at any stage of your investing career. Many financial experts advise that the best funds to buy are ones that invest in dividend-paying firms. You may believe you want the highest-yielding dividend funds, but there are other criteria to consider when selecting the finest funds. Only no-load mutual funds with low expense ratios make our list of best dividend funds. The funds on our list are divided between Vanguard and Fidelity, two mutual fund firms noted for their competitive price.
Why Invest in Dividend Funds?
Dividend stocks and funds provide a consistent income stream thanks to quarterly dividend payments. Dividend funds are a fantastic alternative for retired investors because of their consistency. Those of any age, however, can benefit. You have the option of reinvesting your dividends. A "dividend reinvestment program," or "DRIP," is used to describe this setup. Dividends are reinvested to buy more shares of the investment from which they were received. In periods when bond mutual funds are weak, you can opt for mutual funds that offer dividends. Bond funds, for example, can have lower yields than dividend mutual funds when interest rates are low but economic conditions are typically strong.10 Best Dividend Funds
Here are ten of the finest dividend funds for every investor, in no particular order. These Vanguard and Fidelity dividend funds are all low-cost, no-load products. Each fund has its distinct personality. You might wish to invest in a worldwide fund or a fund with a specific concentration.1. Vanguard International High Dividend Yield Index (VIHAX)
The Vanguard International High Dividend Yield Index replicates the FTSE AW ex-U.S. High Dividend Yield Index. This is a cap-weighted index comprised of 800 equities from multinational corporations that are predicted to have higher dividend yields than the average. VIHAX is a large-cap value fund that invests in developed and emerging economies outside the United States. VIHAX requires a $3,000 minimum initial commitment, and the fee ratio is 0.28 percent or $28 for every $10,000 invested. VYMI is the corresponding exchange-traded fund (ETF), which can be purchased for one share.2. Vanguard High Dividend Index (VHYAX)
The Vanguard High Dividend Index is suitable for income-seeking investors. The portfolio is primarily made up of large-cap value equities from U.S. corporations that pay out significant dividends. VHYAX has an incredibly low expense ratio of 0.08 percent as of May 2021. For every $10,000 invested, you'll get $8 back. The initial investment is $3,000 minimum. A similar ETF is VYM, which has a 0.06 percent cost ratio and can be purchased for one share.3. Vanguard Utilities Index (VUIAX)
The Vanguard Utilities Index is a stock index that tracks the utility sector. Because of its huge dividends, this industry is in high demand. Large-cap utility stocks such as Duke Energy Corporation (DUK) and Southern Company are among the portfolio's holdings (SO). VUIAX has an attractively low expense ratio of 0.10 percent as of May 2021. For every $10,000 invested, that's $10. However, this mutual fund is only available in the Vanguard Admiral share class and requires a $100,000 minimum initial investment. The ETF version of the fund, which trades under the symbol VPU and has the same cost ratio, has no minimum buy requirement.4. Vanguard High-Yield Corporate Fund (VWEHX)
The Vanguard High-Yield Corporate Fund has been managed actively. This fund does not have an ETF counterpart. Low-credit-quality bonds, sometimes known as "junk bonds," are typically held by high-yield bond funds. Compared to the normal high-yield bond fund, the management of this product looks for bonds with a higher credit grade. As a result, the bonds in VWEHX aren't as "junky" as those in other junk bond funds. You can get the yield without taking on as much risk as possible with other high-yield funds. VWEHX's expenditure ratio is 0.23 percent as of May 2021. For every $10,000 invested, this equates to $23. The initial investment is $3,000 minimum.5. Vanguard High-Yield Tax-Exempt Fund (VWAHX)
The Vanguard High-Yield Tax-Exempt Fund (VWAHX) is a mutual fund that generates income while paying little or no taxes. The income is not taxable at the federal level because it invests in municipal bond funds. High-income individuals with taxable accounts are common buyers of tax-exempt funds like VWEHX. VWAHX has 0.23 percent costs as of May 2021. For every $10,000 invested, this equates to $23. The initial investment is $3,000 minimum.6. Vanguard Real Estate Index (VGSLX)
Investors can access the real estate sector through the Vanguard Real Estate Index, which is noted for its consistent dividend payouts. In this area, VGSLX is one of the finest buys. Rising interest rates may pressure real estate investment trusts' returns (REITs). Borrowing costs for property purchasers and developers can be kept low in a low-interest environment. A $3,000 minimum is necessary because these are Admiral shares. As of May 2021, VGSLX's expenses are 0.12 percent. For every $10,000 invested, this equates to $12. The ETF is traded under the ticker VNQ and has a cost ratio of 0.12% for one share.7. Fidelity Equity Income (FEQIX)
Fidelity Equity Income is a quality fund with above-average dividends and ordinary performance. The fund primarily invests in large-cap value companies in the United States. FEQIX's expenditure ratio is 0.6 percent as of May 2021. There is no requirement for a minimum investment.8. Fidelity Equity Dividend Income (FEQTX)
Fidelity Equity Dividend Income isn't known for outperforming its category peers. It is, nevertheless, dependable for providing money through dividends. About 85% of the portfolio is invested in U.S. stocks, 12% overseas companies, and 2% in cash and net other assets. FEQTX has a bit of an aggressive edge due to the presence of mid-cap stocks with large caps. FEQTX has a low expense ratio of 0.6 percent as of May 2021. There is no requirement for a minimum purchasing quantity at the outset.9. Fidelity Strategic Dividend & Income (FSDIX)
Fidelity Strategic Dividend & Income is one of the best Fidelity dividend funds. About two-thirds of the portfolio comprises large-cap equities from the United States. Foreign stocks, bonds, cash, and convertible securities make up the portfolio's balance. There is no requirement for a minimum purchasing quantity at the outset. FSDIX has a low expense ratio of 0.7 percent as of May 2021.10. Fidelity Capital & Income (FAGIX)
The Fidelity Capital & Income Fund is a well-balanced investment. It provides diversification while also pursuing both growth and income objectives. The FAGIX portfolio consists of around 20% shares, 66 percent bonds, 11 percent cash, and 3% bank debt as of May 2021. Ally Financial, Caesars Entertainment, and Bank of America were among the top holdings. Expenses account for 0.67 percent of the total.Frequently Asked Questions (FAQs)
What's a good dividend for a dividend fund?
Look at a big stock index and check what kind of dividends it pays to get a feel of what the typical dividend rate is for companies. The SEC yield on SPY, the ETF that mirrors the S&P 500 index, is around 1.2 percent. The SEC yield on DIA, which monitors the Dow Jones Industrial Average, is about 1.57 percent. As a result, any higher dividend than those rates may be termed above-average.How do expenses influence mutual fund SEC dividend yield?
Expenses are removed from dividend and interest payments when determining the SEC yield. As a result, when comparing SEC yields for mutual funds, you don't need to make any extra effort to account for expenses.What is "ex-dividend" for mutual funds?
Ex-dividend dates are the deadlines by which you must own a mutual fund to earn dividends. This is one of four dividend dates you should be aware of. There's also the dividend declaration date, which is the date on which dividends are declared. Then comes the ex-dividend date. The record date then lists all of the shareholders that owe money. Finally, stockholders receive their dividend payment on the payout day.What's the difference between a dividend and a growth fund?
Dividend and growth funds have quite different purposes, so your decision should be based on your investment objectives. Growth funds seek to invest in relatively modest businesses with the opportunity to expand; if they do, you'll benefit from capital gains. Dividend funds invest in large, stable corporations that are unlikely to grow much for capital gains. Instead of capital gains, these dependable businesses provide income to shareholders in the form of dividends.