Dividend Funds are a great component of any investment portfolio because they offer the potential high rates of returns of Equity Mutual Funds, with the security and constant revenue distribution flow of Fixed Income Mutual Funds. They are the perfect balance of risk versus reward in our investment portfolios.
According to Investopedia the definition of a Dividend is “A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.”
Dividend Mutual Funds invest in stocks of large sized companies with a history of positive annual profits. They pay a quarterly or annual dividend to their shareholders. Dividends are paid out from the profits of large companies. You can find the total amount of a Mutual Funds’ quarterly or annual dividend payout on the Mutual Fund fact sheet or in the annual prospectus from the fund company.
Some fund companies consider Dividend Mutual Funds to be Equity Mutual Funds because they do technically invest in stocks of large corporations. However, some other fund companies consider Dividend Mutual Funds to be Fixed Income Mutual Funds because they pay out a regular stream of dividend income. In my opinion, Dividend Mutual Funds are the perfect investment balance.
Dividend Mutual Funds are considered to be low risk Equity Mutual Funds because they do invest in large corporations that have a proven track record of positive profits. In a nutshell, they are the lower risk Mutual Funds in a category of higher risk Mutual Funds. Do you have Dividend Mutual Funds in your Investment Portfolio?
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Kristina Tahnyak
Tahnya is a Certified Financial Planner and former Investment Advisor turned marketing and communications professional She holds a degree from Concordia University, is debt free and currently works in the field of digital marketing.
I have Eaton Vance Dividend Builder(EVTMX) for a few years now. Its yielding 3.9% per year, at the moment and its paid monthly. I bought it just before the crash, so with the yield I am staying even. I like the idea of having a mutual fund that invests in dividend paying stocks. It makes sense. I am still looking for some capital appreciation. The price has been flat the last 2 years. The expense ratio is high at 1.19%. Maybe someone can recommend a better one. But I’ll be keeping it or one like it for good diversification.
Why not just own the underlying securities and not pay the mutual fund fees?
I prefer to buy mutual funds because they offer lower risk through diversity. Although I do technically pay an MER, it is deducted before my rates of return are published. I prefer to pay an MER for a Mutual Fund as opposed to annual and transaction fees for a brokerage account.
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