Mutual Funds That Pay Monthly Dividends

A fund's published dividend history shows you the frequency of distributions.

A fund's published dividend history shows you the frequency of distributions.

One valuable feature of mutual funds is the potential to receive regular dividend distributions from a managed portfolio of securities. On top of the regular payouts, you have the choice to receive dividends in cash or reinvest them back into more fund shares, growing your mutual fund account value. Mutual funds that pay regular dividends typically do so on either a quarterly or monthly schedule.

Investment Earnings Types

Of the different types of investments you can select from, stocks pay dividends, bonds pay interest and municipal bonds pay tax-free interest. A mutual fund generates these types of income on a portfolio of stocks or bonds and passes the income along to investors as fund dividends. The dividends from a mutual fund retain the tax characteristics of the portfolio income. For example, the dividends from a municipal bond fund are tax-exempt income, just like the interest earned from the bonds owned by the fund.

Stocks, Bonds and Fund Dividends

In mutual fund investing it is generally and broadly accepted that stock funds pay quarterly dividends and bond funds pay monthly. If you are set on receiving monthly dividends from your mutual fund investment, you should be looking at bond funds. In the universe of bond funds you can find funds that invest in government bonds, tax-free municipal bonds, corporate bonds or high-yield bonds or that offer broad-coverage investment in the bond market.

Investment Trade-Offs

A mutual fund that owns stocks can provide investment gains through increasing stock prices and earn dividends from the stocks the fund holds. As a result, a stock fund provides a combination of income and capital appreciation. With a bond fund the income paid as dividends is probably the bulk of the investment results from the fund. Bond funds are mostly about the dividend yield; if there is any capital appreciation, it ends up being a small bonus on the total return.

Big Dividends From Closed-End Funds

Closed-end funds are a cousin to mutual funds, with shares that trade on the stock exchanges. One place where closed-end funds differ from mutual funds is their dividend payment schedules. A large percentage of the 700 or so closed-end funds pay monthly dividends; stock, international-stock and alternate-asset-class funds exist among the group of closed-end funds paying monthly distributions. If you want both diversity of investment types and monthly distributions, it makes sense to open a discount brokerage account and research the world of closed-end funds.


About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

Photo Credits

  • Jupiterimages/Comstock/Getty Images