Income index funds

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Best index funds in October 2021

Index funds are popular with investors because they promise ownership of a wide variety of stocks, greater diversification and lower risk – usually all at a low price. That’s why many investors, especially beginners, find index funds to be superior investments to individual stocks.

Among the best are index funds based on the Standard & Poor’s 500 Index (S&P 500). The index includes hundreds of the largest, globally diversified American companies across every industry, making it a relatively low-risk way to invest in stocks. Of course, as 2020 showed, even the whole market can fluctuate dramatically, especially if something momentous happens.

This index is the very definition of the market, and by owning a fund based on the index, you’ll get the market’s return, historically about 10 percent per year. It’s among the most popular indexes.

Here’s everything you need to know about index funds, including five of the top index funds to consider adding to your portfolio this year.

Best index funds for October 2021

The list below includes S&P 500 index funds from a variety of companies, and it includes some of the lowest-cost funds trading on the public markets. When it comes to an index fund like this, one of the most important factors in your total return is cost. Included are two mutual funds and three ETFs:

1. Fidelity ZERO Large Cap Index

2. Vanguard S&P 500 ETF

3. SPDR S&P 500 ETF Trust

4. iShares Core S&P 500 ETF

5. Schwab S&P 500 Index Fund

1. Fidelity ZERO Large Cap Index (FNILX)

The Fidelity ZERO Large Cap Index mutual fund is part of the investment company’s foray into mutual funds with no expense ratio, thus its ZERO moniker. The fund doesn’t officially track the S&P 500 – technically it follows the Fidelity U.S. Large Cap Index – but the difference is academic. The real difference is that investor-friendly Fidelity doesn’t have to cough up a licensing fee to use the S&P name, keeping costs lower for investors.

Expense ratio: 0 percent. That means every $10,000 invested would cost $0 annually.

2. Vanguard S&P 500 ETF (VOO)

As its name suggests, the Vanguard S&P 500 tracks the S&P 500 index, and it’s one of the largest funds on the market with hundreds of billions in the fund. This ETF began trading in 2010, and it’s backed by Vanguard, one of the powerhouses of the fund industry.

Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually.

3. SPDR S&P 500 ETF Trust (SPY)

The SPDR S&P 500 ETF is the granddaddy of ETFs, having been founded all the way back in 1993. It helped kick off the wave of ETF investing that has become so popular today. With hundreds of billions in the fund, it’s among the most popular ETFs. The fund is sponsored by State Street Global Advisors — another heavyweight in the industry — and it tracks the S&P 500.

Expense ratio: 0.09 percent. That means every $10,000 invested would cost $9 annually.

4. iShares Core S&P 500 ETF (IVV)

The iShares Core S&P 500 ETF is a fund sponsored by one of the largest fund companies, BlackRock. This iShares fund is one of the largest ETFs and like these other large funds, it tracks the S&P 500. With an inception date of 2000, this fund is another long-tenured player that’s tracked the index closely over time.

Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually.

5. Schwab S&P 500 Index Fund (SWPPX)

With tens of billions in assets, the Schwab S&P 500 Index Fund is on the smaller side of the heavyweights on this list, but that’s not really a concern for investors. This mutual fund has a strong record dating back to 1997, and it’s sponsored by Charles Schwab, one of the most respected names in the industry. Schwab is especially noted for its focus on making investor-friendly products, as evidenced by this fund’s razor-thin expense ratio.

Expense ratio: 0.02 percent. That means every $10,000 invested would cost $2 annually.

Why are index funds so popular?

The S&P 500 index fund continues to be among the most popular index funds. S&P 500 funds offer a good return over time, they’re diversified and a relatively low-risk way to invest in stocks.

  • Attractive returns – Like all stocks, the S&P 500 will fluctuate. But over time the index has returned about 10 percent annually. That doesn’t mean index funds make money every year, but over long periods of time that’s been the average return.
  • Diversification – Investors like index funds because they offer immediate diversification. With one purchase, investors can own a wide swath of companies. One share of an index fund based on the S&P 500 provides ownership in hundreds of companies.
  • Lower risk – Because they’re diversified, investing in an index fund is lower risk than owning a few individual stocks. That doesn’t mean you can’t lose money or that they’re as safe as a CD, for example, but the index will usually fluctuate a lot less than an individual stock.
  • Low cost – Index funds can charge very little for these benefits, with a low expense ratio. For larger funds you may pay $3 to $10 per year for every $10,000 you have invested. In fact, one fund (listed above) charges you no expense ratio at all. When it comes to index funds, cost is one of the most important factors in your total return.

While some funds such as S&P 500 index funds allow you to own companies across industries, others own only a specific industry, country or even investing style (say, dividend stocks).

How to invest in an index fund in 3 easy steps

It’s surprisingly easy to invest in an index fund, but you’ll want to know what you’re investing in, not simply buy random funds that you know little about.

1. Choose an index fund to invest in

Your first step is finding what you want to invest in. While an S&P 500 index fund is the most popular index fund, they also exist for different industries, countries and even investment styles. So you need to consider what exactly you want to invest in and why it might hold opportunity:

  • Location: Consider the geographic location of the investments. A broad index such as the S&P 500 owns American companies, while other index funds might focus on a narrower location (France) or an equally broad one (Asia-Pacific).
  • Business: Which industry or industries is the index fund investing in? Is it invested in pharma companies making new drugs, or maybe tech companies? Some funds specialize in certain industries and avoid others.
  • Market opportunity: What opportunity does the index fund present? Is the fund buying pharma companies because they’re making the next blockbuster drug or because they’re cash cows paying dividends? Some funds invest in high-yield stocks while others want high-growth stocks.

You’ll want to carefully examine what the fund is investing in, so you have some idea of what you actually own. Sometimes the labels on an index fund can be misleading. But you can check the index’s holdings to see exactly what’s in the fund.

2. Decide which index fund to buy

After you’ve found a fund you like, you can look at other factors that may make it a good fit for your portfolio. The fund’s expenses are huge factors that could make – or cost – you tens of thousands of dollars over time.

  • Expenses: Compare the expenses of each fund you’re considering. Sometimes a fund based on a similar index can charge 20 times as much as another.
  • Taxes: For certain legal reasons, mutual funds tend to be less tax-efficient than ETFs. At the end of the year many mutual funds pay a taxable capital gains distribution, while ETFs do not.
  • Investment minimums: Many mutual funds have a minimum investment amount for your first purchase, often several thousand dollars. In contrast, many ETFs have no such rule, and your broker may even allow you to buy fractional shares with just a few dollars.

3. Purchase your index fund

After you’ve decided which fund fits in your portfolio, it’s time for the easy part – actually buying the fund. You can either buy directly from the mutual fund company or through a broker. But it’s usually easier to buy a mutual fund through a broker. And if you’re buying an ETF, you’ll need to go through your broker.

Things to consider when investing in index funds

As you’re looking at index funds, you’ll want to consider the following factors:

  • Long-run performance: It’s important to track the long-term performance of the index fund (ideally at least five to ten years of performance) to see what your potential future returns might be. Each fund may track a different index or do better than another fund, and some indexes do better than others over time. Long-run performance is your best gauge to what you might expect in the future, but it’s no guarantee, either.
  • Expense ratio: The expense ratio shows what you’re paying for the fund’s performance on an annual basis. For funds that track the same index, such as the S&P 500, it makes little sense to pay more than you have to. Other index funds may track indexes that have better long-term performance, potentially justifying a higher expense ratio.
  • Trading costs: Some brokers offer very attractive prices when you’re buying mutual funds, even more so than the same mutual fund company itself. If you’re going with an ETF, virtually all major online brokers now allow you to trade without a commission. Also, if you’re buying a mutual fund, beware of sales loads, or commissions, which can easily lop off 1 or 2 percent of your money before it’s invested. These are easy to avoid by choosing funds carefully, such as those from Vanguard and many others.
  • Fund options: Not all brokers will offer all mutual funds, however. So you’ll need to see whether your broker offers a specific fund family. In contrast, ETFs are typically available at all brokers because they’re all traded on an exchange.
  • Convenience: It may be a lot easier to go with a mutual fund that your broker offers on its platform rather than open a new brokerage account. But going with an ETF instead of a mutual fund may also allow you to sidestep this issue.

Can an index fund investor lose everything?

Putting money into any market-based investment such as stocks or bonds means that investors could lose it all if the company or government issuing the security runs into severe trouble. However, the situation is a bit different for index funds because they’re often so diversified.

An index fund usually owns at least dozens of securities and may own potentially hundreds of them, meaning that it’s highly diversified. In the case of a stock index fund, for example, every stock would have to go to zero for the index fund, and thus the investor, to lose everything. So while it’s theoretically possible to lose everything, it doesn’t happen for standard funds.

That said, an index fund could underperform and lose money for years, depending on what it’s invested in. But the odds that an index fund loses everything are very low.

What is considered a good expense ratio?

Mutual funds and ETFs have among the cheapest average expense ratios, and the figure also depends on whether they’re investing in bonds or stocks. In 2020, the average stock index mutual fund charged 0.06 percent (on an asset-weighted basis), or $6 for every $10,000 invested. The average stock index ETF charged 0.18 percent (asset-weighted), or $18 for every $10,000 invested.

Index funds tend to be much cheaper than average funds. Compare the numbers above with the average stock mutual fund (on an asset-weighted basis), which charged 0.54 percent, or the average stock ETF, which charged 0.18 percent. While the ETF expense ratio is the same in each case, the cost for mutual funds generally is higher. Many mutual funds are not index funds, and they charge higher fees to pay the higher expenses of their investment management teams.

So anything below the average should be considered a good expense ratio. But it’s important to keep these costs in perspective and realize that the difference between an expense ratio of 0.10 percent and 0.05 percent is just $5 per year for every $10,000 invested. Still, there’s no reason to pay more for an index fund tracking the same index.

Is now a good time to buy index funds?

If you’re buying a stock index fund or almost any broadly diversified stock fund such as an S&P 500 fund, it can be a good time to buy. That’s because the market tends to rise over time, as the economy grows and corporate profits increase. In this regard, time is your best friend, because it allows you to compound your money, letting your money make money. That said, narrowly diversified index funds (such as funds focused on one industry) may do poorly for years.

Investors need to take a long-term mindset, however, and experts recommend adding money to the market regularly. You’ll take advantage of dollar cost averaging and lower your risk. A strong investing discipline can help you make money in the market over time. Investors should avoid timing the market, that is, jumping in and out of the market to capture gains and dodge losses.

Index fund FAQ

If you’re looking to get into index funds, you may still have a few more questions. Here are answers to some of the most frequently asked questions that investors have about them.

How do index funds work?

An index fund is an investment fund – either a mutual fund or an exchange-traded fund (ETF) – that is based on a preset basket of stocks, or index. This index may be created by the fund manager itself or by another company such as an investment bank or a brokerage.

These fund managers then mimic the index, creating a fund that looks as much as possible like the index, without actively managing the fund. Over time the index changes, as companies are added and removed, and the fund manager mechanically replicates those changes in the fund.

Because of this approach, index funds are considered a type of passive investing, rather than active investing where a fund manager analyzes stocks and tries to pick the best performers.

This passive approach means that index funds tend to have low expense ratios, keeping them cheap for investors getting into the market.

Some of the most well-known indexes include the S&P 500, the Dow Jones Industrial Average and the Nasdaq 100. Indexing is a popular strategy for ETFs to use, and most ETFs are based on indexes.

What sort of fees are associated with index funds?

Index funds may have a couple different kinds of fees associated with them, depending on which type of index fund:

  • Mutual funds: Index funds sponsored by mutual fund companies may charge two kinds of fees: a sales load and an expense ratio.
    • A sales load is just a commission for buying the fund, and it may happen when you buy or when you sell or over time. Investors can usually avoid these by going with an investor-friendly fund company such as Vanguard, Schwab or Fidelity.
    • An expense ratio is an ongoing fee paid to the fund company based on the assets you have in the fund. Typically these are charged daily and come out of the account seamlessly.
  • ETFs: Index funds sponsored by ETF companies (many of which also run mutual funds) charge only one kind of fee, an expense ratio. It works the same way as it would with a mutual fund, with a tiny portion seamlessly deducted each day you hold the fund.

ETFs have become more popular recently because they help investors avoid some of the higher fees associated with mutual funds. ETFs are also becoming popular because they offer other key advantages over mutual funds.

Bottom line

These are some of the best S&P 500 index funds on the market, offering investors a way to own the stocks of the S&P 500 at low cost, while still enjoying the benefits of diversification and lower risk. With those benefits, it’s no surprise that these are some of the largest funds on the market.

Learn more:

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.


8 Top Dividend Index Funds

What are dividend index funds? Let's take each word in reverse order. First, they're funds — either mutual funds or exchange-traded funds (ETFs). Second, they attempt to track an index that consists of multiple stocks. Third, their focus is on stocks that pay dividends.

Just as dividend stocks aren't ideally suited for every type of investor, dividend index funds won't appeal to everyone. However, if you're primarily interested in obtaining steady income rather than high growth from your investments, these funds could be just what you're looking for. And, there's no stock-picking required.

Image source: Getty Images.

8 top dividend index funds

Here are eight dividend index funds listed in alphabetical order that have relatively low expense ratios but varying dividend yields and risk levels. 

FundDividend YieldExpense RatioRisk Level

Invesco S&P 500 High Dividend Low Volatility ETF(NYSEMKT:SPHD)


iShares Core High Dividend ETF (NYSEMKT:HDV)

4.07%0.08%Below Average

ProShares S&P 500 Aristocrats ETF (NYSEMKT:NOBL)

2.14%0.35%Below Average

Schwab U.S. Dividend Equity ETF (NYSEMKT:SCHD)

3.16%0.06%Below Average

Vanguard High Dividend Yield ETF (NYSEMKT:VYM)

4.53%0.06%Below Average

Vanguard Dividend Appreciation Index ETF (NYSEMKT:VIG)


0.06%Below Average

iShares Core Dividend Growth ETF (NYSEMKT:DGRO)

2.10%0.08%Below Average

Vanguard Real Estate ETF (NYSEMKT:VNQ)


Data source: Yahoo! Finance; Morningstar; iShares; Vanguard. Data current as of July 27, 2021.

Invesco S&P 500 High Dividend Low Volatility ETF

This ETF attempts to track the S&P 500 Low Volatility High Dividend Index. As the name of the index indicates, it targets dividend stocks that historically haven't been very volatile but also provide high dividend yields. The ETF includes 50 stocks, with its highest allocation to utility stocks and consumer staples stocks. 

iShares Core High Dividend ETF

The iShares Core High Dividend ETF attempts to track an index that consists of 75 U.S. stocks that pay relatively high dividends. Its top holdings include several energy stocks and big pharmaceutical stocks. 

ProShares S&P 500 Aristocrats ETF

This is the only ETF that exclusively tracks the performance of Dividend Aristocrats — S&P 500 members that have increased their dividends for at least 25 consecutive years. As you might expect, these stocks tend to have lower risk levels. This ETF currently owns 65 Dividend Aristocrat stocks.

Schwab U.S. Dividend Equity ETF

The Schwab U.S. Dividend Equity ETF seeks to track the total return of the Dow Jones U.S. Dividend 100 Index. This index focuses on U.S. stocks with high dividend yields and a strong track record of consistently paying dividends. Financial stocks make up more than 25% of the ETF's holdings. 

Vanguard High Dividend Yield ETF

This ETF attempts to track the performance of the FTSE High Dividend Yield Index. The index includes only U.S. stocks with high dividend yields but excludes real estate investment trusts (REITs). The Vanguard High Dividend Yield ETF currently owns more than 400 stocks, with financial stocks representing more than 20% of its assets.

Vanguard Dividend Appreciation Fund Index ETF

The Vanguard Dividend Appreciation Fund Index ETF tracks the NASDAQ US Dividend Achievers Select Index, which consists of 247 companies that have increased their dividend over long periods of time. The idea is to include companies that have a long track record of dividend growth, which speaks to superior capital management. 

iShares Core Dividend Growth ETF

Similar to Vanguard's Dividend Appreciation ETF, the iShares Core Dividend Growth ETF seeks to replicate the performance of companies that have consistently increased their dividend. This ETF tracks the Morningstar US Dividend Growth Index, which is nearly 50% larger than the NASDAQ US Dividend Achievers Select Index. With nearly 400 holdings, the opportunity set is slightly larger here compared to Vanguard's fund.  

Vanguard Real Estate ETF

The real estate world also has the potential to generate meaningful income through dividends. The Vanguard Real Estate ETF invests in REITs, as well as in companies that invest in office buildings, hotels, and a variety of other properties. This ETF tracks the MSCI US Investable Market Real Estate 25/50 Index, which consists of about 175 companies.

How to invest in dividend index funds

A good first step is to determine your overall asset allocation, and, as a follow-up, determine how much you have to invest in stocks and/or equity index funds. Once you've done the pre-work, you can visit any of the major online discount brokerages, such as Vanguard, Fidelity, or Charles Schwab, all of which offer free (or very low-cost) ETF trading.

Here are three top considerations when selecting dividend index funds to buy:

  • Dividend yield: Dividends paid as a percentage of the fund's price.
  • Expense ratio: The percentage of fund assets used for operating costs.
  • Risk level: How risky the fund is.

To some extent, there's a trade-off between dividend yield and risk level. Generally speaking, higher yields are associated with higher risk, but higher expense ratios don't necessarily translate to higher dividend yields or lower risk levels.

Additionally, it's important to remember that dividend yield alone does not act as a perfect indicator of future performance. By focusing only on companies that pay dividends, you're leaving out a large number of companies, such as big tech, that derive their growth from price appreciation.

Make sure that you construct a diversified portfolio that covers a wide population of underlying firms with different capital strategies.

Why invest in dividend index funds?

Dividend index funds will be most attractive to income-seeking investors. The top funds provide solid dividend yields and diversification across a wide range of stocks, which can be less risky than buying a smaller number of individual dividend stocks. Consider dividend index funds as part of a broadly diversified portfolio that considers your overall risk tolerance and return expectations.

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8 Best Funds for Regular Dividend Income

Reinvestment, in which the generated interim income is reinvested back into the investment, is known to increase long-term returns. However, some investors opt to receive periodic payments from their investments, depending on their specific needs. Periodic coupon or interest payments from bonds, which are debt instruments, and regular dividends, which are cash payments from stocks and mutual funds, can offer investors a steady stream of income. In this article, we explore eight of the best dividend mutual funds, which are known to pay dividends regularly.

Key Takeaways

  • Many mutual funds offer aggregate dividends from multiple stocks that are either reinvested or paid out to account holders.
  • Dividend funds are paid out after fees, meaning the best dividend mutual funds should have low expense ratios and high yields.
  • Dividend-paying mutual funds tend to focus on large, well-established companies with a strong track record of paying dividends or are expected to increase their dividend payments.

How Do Mutual Funds Pay Dividends?

Mutual funds often contain a basket of securities including equities or stocks, which may pay dividends. Dividends are paid to shareholders at different times. Mutual funds following a dividend reinvestment plan, for example, reinvest the received dividend amount back into the stocks. Other funds follow the dividend payment plan by continuing to aggregate dividend income over a monthly, quarterly, or sometimes six-month period, and then making a periodic dividend payment to account holders.

A fund pays income after expenses. If a fund is getting regular yield from the dividend-paying constituent stocks, those expenses can be covered fully or partially from dividend income. Depending on the local laws, dividend income may be tax-free, which can add to an investor's overall return.

Investors should also note that companies are not obliged to make dividend payments on their stocks, meaning dividends are not guaranteed. Investors looking for dividend income may find dividend-paying mutual funds a better bet than individual stocks, as the latter aggregates the available dividend income from multiple stocks. A mutual fund also helps with diversifying risk from depreciating stock prices since the money invested is spread between dozens of companies.

Top Dividend-Paying Mutual Funds

Here are the best mutual funds that pay high-dividend yields. A useful benchmark for gauging the dividend-paying performance of a fund is to compare the mutual fund yield against the yield of the benchmark S&P 500 index.

Also, the 30-day SEC Yield is a standard measurement in the industry mandated by the U.S. Securities and Exchange Commission (SEC) to help investors compare funds before investing.

Please note that any fund that invests in stocks, bonds, or other securities can realize gains in losses due to the price movements of the holdings. Although the market gains can lead to enhanced capital gains in addition to the SEC yield, market losses can also occur. These losses can be so significant that the SEC yield can not only be wiped out but also a loss of the initial investment is possible.

1. The Vanguard High Dividend Yield Index Admiral Shares (VHYAX)

VHYAX is an index fund that attempts to replicate the performance of the FTSE High Dividend Yield Index. This index contains stocks of companies, which usually pay higher than expected, or greater than average, dividends. Being an index fund, the VHYAX replicates the benchmark stock constituents in the same proportion. This fund has maintained a consistent history of paying quarterly dividends since its inception on Feb. 7, 2019.

Being an index fund, this has one of the lowest expense ratios of 0.08% and SEC yield was 2.75%. The fund has a $3,000 minimum investment requirement. It may be a perfect low-cost fund for anyone looking for higher than average dividend income.

For investors looking for a lower minimum investment requirement, Vanguard offers this fund as an exchange traded fund (ETF), which has many similar characteristics. The ETF version is called the Vanguard High Dividend Yield ETF (VYM).

2. The Vanguard Dividend Appreciation Index Admiral Shares (VDADX)

VDADX is an index fund, which attempts to replicate the performance of the benchmark NASDAQ US Dividend Achievers Select Index. This unique index consists of stocks that have been increasing the dividend payouts over time. Being an index fund, VDADX replicates the benchmark stock constituents in the same proportion. This fund is also a consistent payer of quarterly dividends since its inception date of Dec. 19, 2013.

The VDADX also has one of the lowest expense ratios of 0.08% and an SEC yield of 1.65%. The fund has a $3,000 minimum investment requirement.

For investors looking for a lower minimum investment requirement, Vanguard offers this fund as an ETF, which has many similar characteristics. The ETF version is called the Vanguard Dividend Appreciation ETF (VIG).

3. The Columbia Dividend Opportunity Fund (INUTX)

Columbia's INUTX focuses on delivering dividends by investing in the stocks of companies that have historically paid consistent and increasing dividends. The fund offers a diversified portfolio of holdings that include common stocks, preferred stocks, and derivatives for both U.S. and foreign securities of various sized companies.

The INTUX has an expense ratio of 1.05% and an SEC yield of 1.96%. The fund's inception date was Aug. 1, 1988, and also has a $2,000 minimum investment requirement.

4. The Vanguard Dividend Growth Fund (VDIGX)

The Vanguard Dividend Growth Fund (VDIGX) primarily invests in a diversified portfolio of large-cap (and occasionally mid-cap) U.S. and global companies, which are undervalued relative to the market and have the potential for paying dividends regularly. The fund research attempts to identify companies that have high earnings growth potential leading to more income, as well as the willingness of company management to increase dividend payouts.

The VDIGX has an expense ratio of 0.26% and an SEC yield of 1.48%. The fund's inception date was May 15, 1992, and also has a $3,000 minimum investment requirement.

5. The T. Rowe Price Dividend Growth Fund (PRDGX)

Based on the principle that increasing dividends over a period are positive indicators of a company’s financial health and growth, PRDGX looks to invest in mostly stocks of large companies with some mid-sized companies mixed in. The fund seeks companies that have a strong track record of paying dividends or that are expected to increase their dividends over time.

The PRDGX contains mostly stocks of large U.S. companies that pay quarterly dividends. The PRDGX has an expense ratio of 0.63%. The fund's inception date was Dec. 30, 1992, and has a $2,500 minimum initial investment requirement.

6. The Federated Strategic Value Dividend Fund (SVAAX)

For investors who are not satisfied with quarterly dividends, the SVAAX from Federated offers monthly dividends. The fund's investment strategy includes generating income and long-term capital appreciation by focusing on higher-dividend-paying stocks than that of the broader equity market. The fund also seeks out companies with dividend growth potential and the fund is primarily benchmarked to the Dow Jones U.S. Select Dividend Index.

The SVAAX contains mostly stocks of large U.S. companies with some foreign securities. The SVAAX has an expense ratio of 1.06% and an SEC yield of 3.21%. The fund's inception date was March 30, 2005, and has a $1,500 minimum initial investment requirement.

7. The Vanguard Equity Income Fund Investor Shares (VEIPX)

The VEIPX from Vanguard focuses primarily on established U.S. companies that are consistent dividend payers. The fund's holdings tend to be slow-growth but high-yield companies. As a result, the stock price gains may be limited when compared to other funds. This fund pays regular quarterly dividends and has an inception date of March 21, 1988. The VEIPX has an expense ratio of 0.28% and an SEC yield of 2.24%. The VEIPX has a $3,000 minimum investment requirement.

8. The Neuberger Berman Equity Income Fund (NBHAX)

The NBHAX looks to earn dividend income and capital appreciation by investing in high dividend-paying equities that include common stocks, utilities, real estate investment trusts (REITs), convertible preferred stock, convertible securities such as bonds, and derivative instruments like call and put options.

The fund's inception date was June 9, 2008, and has a $1,000 minimum initial investment requirement. It pays dividends with an SEC yield of 1.50% and has an expense ratio of 1.06%.

The Bottom Line

A company's dividend payments are typically paid from the company’s retained earnings, which represent the saved profit from prior years. However, companies may be better off reinvesting the dividend money back in the business, leading to higher revenue and an appreciation of their stock prices.

Also, dividend payments limit the reinvestment gains due to compounding. Investors looking for regular dividend income should weigh both the benefits of dividend income with the limitations before investing in high dividend-paying mutual funds.

Warren Buffett: Buying And Holding Index Funds Has Worked - CNBC


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