Posted on 01 October 2012. Tags: dividend fund
A dividend fund is a mutual fund that focuses its pooled investment money on dividend stocks rather than other financial instruments. In order to understand how these funds are truly distinct from investment schemes, you need to understand what a dividend is and how a mutual fund works.
A dividend is simply a payment that a company makes periodically to each stockholder. The size and frequency of the payments are based on profits and the amount of stock that each shareholder owns. Many investors prefer dividend stocks because of the regular income received from their investments.
A mutual fund is a type of collective investment. People pool their money in one fund, which then buys a variety of stocks. The value of these investments changes according to the performance of these varied stocks. Some people prefer such investments because they carry less risk of catastrophic failure.
A dividend fund targets stocks that pay dividends rather than some other class of stocks. As a result, the underlying assets of a dividend fund may be very diverse. This only adds to the security of the investment while adding the attraction of regular income.
If you want to find a good dividend mutual fund for your own portfolio, look for fund managers who have selected high quality companies. The valuations for these dividends will be at premium levels. This will mean lower but steady yields for fund participants. There are four very solid mutual funds with these qualities. They are the Vanguard Dividend Growth Fund, the Columbia Dividend Income Fund, MFS Utilities A and the Matthews Asia Dividend Investor. Each dividend fund has been noted for its recent performance.
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