High-Dividend Mutual Funds: The 5 Highest-Paying Funds

Dividends are a way to generate passive income through your investments. They are 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. So, when investing in dividend-paying mutual funds, you are generally guaranteed to get a dividend payment at least once per year.

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 currently the five best options for high-paying mutual funds, 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 — there are some funds, such as the Vanguard Equity Income Fund Admiral Shares (VEIRX) and the American Funds American High-Income Trust (HIGFX), that 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.

Keep in mind that, as with any investment product, exact numbers can fluctuate frequently. 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
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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
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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
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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
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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
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If you are more interested in funds that have high earning potential (including dividends, interest, capital gain, etc.) but may not have the highest dividend payments, you may also be interested in our list of mutual funds with average annual returns of around 12%.