Dividends are a way to generate passive income through your investments.
They’re generated from mutual fund holdings — stocks and bonds are the mutual fund’s assets, which generate the dividend income.
Dividend-paying mutual funds allow investors to earn at least one dividend payment per year, with many offering quarterly or monthly payments.
How often a mutual fund releases dividends varies based on each fund’s policies.
However, any mutual fund should pay out dividends at least once a year to avoid tax liability on that 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 over time, and the short-term aspect is the dividends you’ll earn as an investor.
Below, we list the five highest-paying mutual funds, including information about initial investment requirements and account expenses.
The Five Highest-Paying Mutual Funds
The following are the five best options for high-paying mutual funds at the time of writing, based on data gathered from Morningstar.
Note that most funds express their dividend rates in terms of a percentage yield.
Dividend yields represent the ratio of the current annual dividend to the current share price — you can use this to determine annual dividends in dollar amounts.
For example, if a fund’s share price is $50 and the dividend yield is 3%, you can expect annual dividends of about $1.50 for a single share. If you invest $1,000, your annual dividends will be about $30.
We considered the required initial investment as a major factor in ranking the mutual funds below.
Some funds, such as the Vanguard Equity Income Fund Admiral Shares (VEIRX) and the American Funds American High-Income Trust (HIGFX), offer high payouts but require initial investments of anywhere from $50,000 to $1 million. This is not accessible to most, so we’ve left these options off the list.
Remember that exact numbers can fluctuate frequently, as with any investment product.
Morningstar provides in-depth analyses of any fund you may be interested in — to use its services, you can create an account and get a 14-day free trial.
We’ve ordered the list below starting with the best overall mutual fund options.
Fidelity High Income (SPHIX)
The Fidelity High Income Fund has total assets of over $4 billion. Its top sector is corporate bonds.
Initial investment:
None
Average yield:
About 5%
Expense ratio:
0.70%
Risk:
Moderate
Putnam Diversified Income Y (PDVYX)
The Putnam Diversified Income has assets that total over $4 billion, and its top holdings are in the mortgage field.
Initial investment:
None
Average yield:
About 4.7%
Expense ratio:
0.73%
Risk:
Above average
Columbia Dividend Opportunity Fund (INUTX)
The Columbia Dividend Opportunity Fund has assets over $2 billion, and its top holdings are in the technology and consumer discretionary fields.
Initial investment:
$2,000
Average yield:
About 3.7%
Expense ratio:
1.03%
Risk:
Below average
Northern Multi-Manager High Yield Opportunity Fund (NMHYX)
The Northern Multi-Manager High Yield Opportunity Fund assets total over $360 million, and it is one of the most diverse of the high-paying mutual funds.
Initial investment:
$2,500
Average yield:
About 4.7%
Expense ratio:
0.87%
Risk:
Above average
BlackRock High Yield Bond Fund (BHYSX)
The BlackRock High Yield Bond Fund is largely invested in corporate bonds, with total assets of over $14 billion.
Initial investment:
$5,000
Average yield:
About 3.5%
Expense ratio:
0.89%
Risk:
Moderate
