How to Find Mutual Funds That Have Dividend-Paying Stocks
By Howard Feigenbaum
How do you find mutual funds with stocks that pay dividends? You must do some research. Here are some things to look for:
1. Review the fund's objective. The fund's investment objective is contained in the prospectus. Mutual funds are required to clearly state the purpose of the fund. Although a great many mutual funds have some stocks that pay dividends, not all of them are designed to specialize in such stocks for the purpose of dividend income. Your job is to read the prospectus in order to make that determination.
2. Review the investment style of the fund's management. Does the investment style agree with your needs. If you seek dividend income from stocks, you might seek reassurance that the fund management is doing the same. There are equity-income funds which contain stocks that pay dividends, but the investment style and objective may be more heavily focused on increasing the equity value (the share price) rather than strongly focusing on dividend income. If the prospectus does not adequately discuss the fund management's preference for equity versus income, follow up with a call to the investment fund.
3. Review the fund's portfolio. Every fund is required to make available to the public a record of the investment portfolio. Funds list their major holdings as well as a detailed description of the portfolio as of a certain date. Take a look at the fund's investments to see what industries are represented, how well-diversified the portfolio is and how much turnover or replacement of the portfolio's holdings there is each year.
4. Look for investment fund companies that specialize in providing income. A mutual fund's family of funds may be an indicator of expertise with dividend-paying stocks. If the fund family includes a larger number of income funds, there may be a likelihood that there is a history and experience with dividend-paying stocks. If the fund family has only one fund that pays dividends from stocks, and the dividends are paid semi-annually, you might consider looking elsewhere.
5. Review the fund's timetable for paying dividends. Does the fund pay dividends monthly, quarterly, semi-annually or annually? A more frequent dividend payment schedule may indicate the fund's desire to cater to people seeking dividend income.
6. Review the fund's method for paying dividends. If you are seeking regular dividend income, the fund should have available several ways of getting the income into your hands. Such methods include cash payment by check, direct deposit into your checking account or wire transfer.
7. Match your investment goals and tolerance for risk with a mutual fund that shares your investment objective. What's right for someone else isn't necessarily right for you. An investment is a long-term project. Your comfort and goals should be the primary consideration.
Howard Feigenbaum is Registered Principal and Owner of Sharemaster, a Broker-Dealer firm that specializes in monthly dividend income funds.
"Do you know the only thing that gives me pleasure? It's to see my dividends coming in." - John D. Rockefeller
This article is a general discussion of the subject and is not intended as a solicitation or specific investment advice.
Copyright 2011 Sharemaster