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The Best Dividend Mutual Funds of 2024

June 17, 2024

Written by Daria Uhlig

Edited by Melanie Grafil

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A dividend mutual fund could be the answer for anyone wondering how to invest for both growth and income. The dividend stocks that make up the funds are typically high-quality companies that can ride out volatile stock market fluctuations, while mutual funds diversify risk by holding potentially hundreds of different investments.

Here’s what you need to know about mutual fund dividends, along with reasons why you might want to add a mutual fund to your portfolio:

What Is a Dividend Mutual Fund?

A mutual fund gathers investment dollars from many different investors to purchase securities such as stocks and bonds. Each fund has its own objectives that guide the specific investments it includes in its portfolio.

Dividend funds prioritize stocks from companies that pay dividends — dividends being portions of the companies’ profits that they periodically return to shareholders.

These funds are often classified as income funds because they emphasize income over capital gains. However, dividend funds can include dividend-paying growth stocks, or even emphasize growth stocks or give income and capital appreciation equal weight.

Best Dividend Mutual Funds for 2024

These dividend mutual funds are some of the best for 2024, based on three-year returns, dividend yield and expense ratio, as well as Morningstar ratings and expert recommendations.

1. T. Rowe Price Dividend Growth Fund (PRDGX)

The T. Rowe Price Dividend Growth Fund is a large blended fund that typically invests 65% or more of its assets in stocks, emphasizing those with a strong history of dividend payments or a strong likelihood of increasing dividends over time. It’s low-cost and a solid performer, having outperformed the large value funds category so far this year as well as over one, three and five years.

Nearly 95% of the portfolio consists of domestic stocks, and more than half of its sector allocation is divided between four sectors: information technology (20.36%), financials (16.52%), healthcare (16.17%) and industrials and business services (16.17%).

Dividend yield: 2.83%
3-year returns: 7.86%
Expense ratio: 0.64%

2. Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX)

The Vanguard High Dividend Yield Index Fund is a passively managed fund that aims to track the performance of the FTSE High Dividend Yield Index, which provides broad exposure to American companies that pay higher-than-average dividends.

Managed by the Vanguard Equity Index Group, this fund has a 0.08% expense ratio, which is much lower than the average 0.90% similar funds charge, according to Vanguard. Financial stocks are weighted most heavily, followed by industrials, consumer staples and healthcare.

Dividend yield: 2.83%
3-year returns: 7.16%
Expense ratio: 0.08%

3. JPMorgan Equity Premium Income (JEPAX)

The objective of the JPMorgan Equity Premium Index Fund is to provide monthly dividends and low-volatility exposure to equity markets. The fund has an experienced management team that takes a defensive approach to the fund’s portfolio, using proprietary risk-adjusted rankings to select stocks, and incorporating options to generate monthly distributable dividends.

The portfolio is a diverse one, with the top 10 holdings making up a little more than 15% of all its holdings. Convertible bonds make up nearly 14% of the portfolio.

In addition to a lower-than-average expense ratio, JEPAX has solid three-year returns and an impressive 6.96% dividend yield.

Dividend yield: 6.96%
3-year returns: 6.79%
Expense ratio: 0.85%

4. Vanguard Equity-Income Investor Shares (VEIPX)

Vanguard Equity-Income Investor Shares (VEIPX) is a large value fund that aims to provide above-average income through exposure to the stock market. Like other value funds, the emphasis on dividends means the portfolio includes mostly mature, slow-growing companies, such as JPMorgan, Merck, Johnson & Johnson and ConocoPhillips. But its dividends might be higher than funds that are more focused on growth.

That said, this is a low-cost fund with a respectable 2.56% yield. Investors with $50,000 or more to invest can reduce their expense ratio from 0.27% to 0.18% by purchasing the Admiral Shares version.

Dividend yield: 2.56%
3-year returns: 7.54%
Expense ratio: 0.27%

5. BlackRock Equity Dividend Fund (MADVX)

The BlackRock Equity Dividend Fund is a large value fund that tracks the Russell 1000 Value Index, investing in mostly U.S. companies with low volatility and a strong potential to increase their dividends. The fund’s dividends have grown faster than the benchmark’s, but it trades at a lower P/E ratio — 12.2 vs. 15.9 times earnings.

This fund is also a mature one, with a 1988 inception date, so it has a long track record and has gained over 3,297% since its inception. Its three, five and 10-year returns all beat its benchmark. The financial sector is the most heavily weighted, making up almost 23% of the portfolio. Healthcare and industrials are also weighted relatively heavily.

About 77% of the portfolio consists of North American stocks. European stocks make up over 14%, and emerging markets and the Asia Pacific Basin comprise 2.61% and 1.76% of the geographic allocation, respectively.

Dividend yield: 1.99%
3-year returns: 7.99%
Expense ratio: 0.70%

6. George Putnam Balanced Fund (PGEOX)

Putnam Investments is now part of Franklin Templeton, but as of June 14, Putnam funds are still on the Putnam Investments website. If you’re a current customer, you’ll continue to access your account there.

For current or new investors, the George Putnam Balanced Fund is perhaps the oldest in this roundup, having been introduced in 1937. It’s not one of the sexy names in mutual funds, but it might be a good choice for traditionalists looking to earn some dividends within a classic blend of stocks and bonds.

Over 60% of the portfolio is made up of common stock, and top six holdings are all tech stocks. Investment-grade corporate bonds comprise about 14% of the portfolio, and U.S. Treasurys make up more than 12%. The fund has a five-star overall rating from Morningstar.

Dividend yield: 1.21%
3-year returns: 5.34%
Expense ratio: 0.72%

7. American Funds Tax-Aware Conservative Growth and Income Portfolio (TAIFX)

The American Funds Tax-Aware Conservative Growth and Income Portfolio gives investors exposure to a diverse mix of dividend stocks and tax-exempt fixed-income securities to produce income — and shield some of that income from federal income tax. Fund managers look for long-term growth potential.

The holdings are split almost 50/50 between growth-and-income mutual funds/exchange-traded funds and tax-exempt bonds. Unlike the other funds in this roundup, the American Funds portfolio doesn’t invest in individual stocks. That could be why it’s so stable — its turnover was just 4% in 2023.

Another difference with this fund is that the minimum investment is $250, compared to the $1,000 or $3,000 required by most other funds.

Dividend yield: 2.23%
3-year returns: 3.03%
Expense ratio: 0.64%

Mutual Fund Dividend and Return Characteristics

Most dividend stocks pay on a quarterly schedule. A mutual fund that holds dividend-paying stocks is required to distribute this income to shareholders. Some funds pay monthly, whereas others pay quarterly or even annually. In addition to a regular income payout, dividend mutual funds have the potential for capital growth.

What Happens to Dividends in a Mutual Fund?

By law, a mutual fund is required to pass profits back to the investor or shareholder, and dividends represent a portion of profits for dividend-paying stocks. A dividend mutual fund pays the distributions, or income, after expenses.

Dividends are passed back to the investor in one of three forms: as an ordinary dividend, as a qualified dividend or as capital gains. The difference between the three ultimately boils down to the tax implications of the dividend payment, which is treated like income earned through work. Dividend mutual funds pay out a dividend at regular intervals to their fund holders.

What Is the Best Dividend Mutual Fund?

Determining the best dividend mutual fund depends on your financial situation, as well as the current economic climate. No single mutual fund is “the best” to buy for every single investor. The best mutual fund for you will be one that meets your investment objectives, has low fees and performs well over long time periods. You can research different fund performances on your own or hire an investment professional to help you find the right one.

Dividend Mutual Fund Risk Characteristics

Companies that pay dividends usually have consistent cash flow. To reach this point, they are often mature companies with predictable earnings streams. This can make dividend stocks less volatile than newer, more aggressive companies, which makes dividend mutual funds appealing to more risk-averse investors.

Some dividend mutual funds invest in companies known as “Dividend Aristocrats.” To qualify for this moniker, a company must be a member of the Standard & Poor’s 500 index and must have increased its dividend annually for at least the last 25 years. These companies have a record of paying rising dividends even through bad economic times, providing some level of assurance for investors.

The Power of Reinvestment

When you invest in dividend mutual funds, you can either take the distributions in cash or reinvest them into more shares of the fund. Reinvested dividends can compound your returns over time, as you’ll be earning dividends on top of your dividends.

For example, if you invest $10,000 in a mutual fund paying a 5% dividend, you’ll earn $500 per year. If you reinvest that dividend — assuming no growth in the underlying shares — you’ll have $10,500 after year one. The next year, you’ll earn $525 rather than the $500 you earned the first year. Over time, dividend reinvestment can be a significant portion of a fund’s overall return.

How Is Dividend Calculated in a Mutual Fund?

Dividends for a mutual fund are calculated like this: On the fund’s record date, the fund manager, whether active or passive, will total all the profits from a reporting period — the dividends in this case — subtract all necessary costs and fees and then divide the remaining amount by the total number of shares in that particular fund.

For example, if the investor has 200 shares in the fund, and the fund provides a $3 distribution per share, the investor will receive $600 for that reporting period.

Which Mutual Fund Gives the Highest Monthly Dividend?

That’s hard to determine because the funds’ dividends change from distribution to distribution. Plus, the dividend amount is not the best way to select a dividend fund. A better strategy is to also consider the fund’s performance over time and its expenses.

How Dividend Mutual Funds Are Taxed

Mutual funds can pay either ordinary or qualified dividends. Ordinary dividends are taxed at your regular tax rate, which would be the same as your wages or salary. Qualified dividends receive a special tax rate of no more than 20% and might even be tax-free. At the end of the year, a mutual fund company will mail you Form 1099-DIV, which lists the amount of ordinary and qualified dividends you have received during the year.

How To Know if Dividends Are Qualified

To assess whether dividends are qualified or not, use this basic formula: check if you held the shares for more than 60 days within the 121-day period starting 60 days before the ex-dividend date. If so, the dividend is qualified.

What Are the Advantages and Disadvantages of Dividend Mutual Funds?

When deciding whether a dividend mutual fund is the right fit for your investment strategy, it’s always wise to consider the pros and cons. The biggest advantage is that it centers mostly on functionality and risk assessment. Dividends from these funds can serve as a source of income or be used to purchase more shares of the mutual fund. They also tend to be much less aggressive.

The biggest disadvantage of a dividend fund — and its biggest advantage — is the income it produces. On the plus side, you’re getting income. On the downside, dividend mutual funds are taxed as ordinary income. Another disadvantage is that your returns on a dividend mutual fund might be less than those of a more aggressive fund.

Dividend Mutual Funds: Caveats and Risks

Dividend mutual funds carry many of the same risks as individual stocks. You can lose money in dividend funds if the underlying stocks go down in value. Your income is also not guaranteed, as stocks can cut their dividends. Dividend mutual funds also carry costs. You might have to pay a commission to buy or sell a fund, and all funds have annual costs expressed in the form of an expense ratio.

Are Dividend Mutual Funds a Good Idea?

Dividend mutual funds could be a good idea for investors who are comfortable with the risk inherent in investing in stocks. They’re best for those who have a long time horizon, as dividend stocks are usually large, mature companies that tend to grow more slowly. A long-term strategy provides an additional benefit — the compound gains you could receive over time if you reinvest your dividends.

John Csiszar contributed to the reporting for this article.

This article has been updated with additional reporting since its original publication.

Information is accurate as of June 17, 2024, and is subject to change.

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