Dividends are an excellent source of passive income. High dividend mutual funds act as both a long-term and short-term investment. The long-term aspect is that your shares can increase in price. The short-term aspect is with dividends. You often only need to wait a quarter of a year to reap those yields. How do you get these benefits? The only precondition is that you choose the right mutual fund to invest. And for that, you need to understand the mechanism of dividend generation.
Dividends are generated from a mutual funds holdings. These stocks and bonds are its assets which generates the dividend income. How often a mutual fund releases dividends vary from one mutual fund to other. But a mutual fund should pay out dividends at least once in a year, to avoid the tax liability on that income. When investing in the following dividend paying mutual funds, you are guaranteed to get dividend payments minimum once each year unless very unusual happens.
Past market analysis gives signals that mutual funds that have invested in utilities, energy and blue chip sectors have been above average dividend payers, consistently. Here are the 5 highest paying dividend mutual funds:
Note: This list will continually be kept up to date. Also, I’m not being paid to endorse any of these companies. Though I’m am a huge Vanguard fan.
1. Voya Corporate Leaders Trust B (LEXCX)
This high dividend mutual fund was set up in 1935 with shares of 30 big US ventures. In the last decade, it has shown remarkable performance, due mainly to its stocks of energy and railroad sectors. It also holds 22 stocks of large cap blue chip companies.
Voya Investments, LLC is in the management company for this fund. It has a total asset of $1.7 billion and expense ratio of 0.50. With a Trailing Twelve Months (TTM) yield of 5.62% per year, it can be a wise choice for investors.
2. American Funds International Growth and Income (RIGGX)
Many wealthy Americans have found exceptional growth with American Funds for nearly a century. This specific fund is a good fund for those seeking to add international holdings in their portfolio. Almost half of its net asset is invested in European stocks. It has big holdings in AXA, TSMC, and Novartis.
Capital Research and Management Company is the management for the fund. Its assets total $9.8 billion and an expense ratio of 0.59. The TTM yield is 3.47%.
3. Wasatch Strategic Income (WASIX)
Established in 2006, this fund’s portfolio mainly contains holdings from the financial sector. It invests primarily in domestic securities. Its holdings include MFA financial and Suncor Energy Inc.
The fund is managed by Sam Stewart. Its total assets amounts to only $ 116.3 million and expense ratio is 0.95. Its TTM yield is 2.69%.
4. Vanguard High Dividend Yield Index (VHDYX)
Starting operations since 2006, the Vanguard high dividend yield index fund invests in common stocks of companies with high dividend yield. Most of its holdings are in the consumer utilities, health care and financial sectors.
It is managed by the Vanguard Equity Investment Group. The fund’s net assets come to $13.8 billion and it has a very low expense ratio of 0.18 (in true Vanguard fashion). With a TTM yield of 2.68%, experts feel confident about its long-term performance.
5. Schwab International Core Equity (SICNX)
The Schwab International Core Equity Fund is a small fund with a big dividend. Total assets amount to $331.2 million. It has its capital allocated in international equities. Most of its holdings are in consumer goods sector, sections also in in health care and telecommunication.
The fund’s expense ratio is 0.86 and TTM yield is 2.62%. With such a high expense ratio and moderate to above average TTM yield, experts advise it, only if you are interested to add some international flavor to your portfolio.
All of these above discussed funds have a Morningstar rating of 5 and are now accepting new investors. Secure one or a mix of these high dividend mutual funds and should be doing just alright for yourself. Here’s a rough example of how you’ll fare:
If you invest $100,000 in Voya Corporate Leaders Trust B (LEXCX), you can expect a dividend yield of 5.62%. That means you’ll gross $5,620 per year just for dividends. On top of that, you can also get a growth in the share price. Dividends are a great way to supplement your income, while still saving for a better future.