4 Best Mutual Funds for Dividend Investors

Dividends have accounted for some 40% of overall U.S. market returns, so don't miss out.

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The picks below are part of Kiplinger’s Personal Finance’s annual Best List, a roundup of the best values in all the areas we cover — from funds, stocks and ETFs to credit cards and bank accounts to cars, college, kid stuff, phone plans, travel and health. Discover all our Best List picks here.

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Kiplinger's Best List, 2016

T. Rowe Price Dividend Growth (PRDGX, yield 1.3%) owns stocks that have ample capacity to deliver higher dividends. These big and sturdy businesses should also keep chugging along through good times and bad. The mutual fund’s expense ratio of 0.64% isn’t the lowest, but it’s below average in its category. (Prices and yields are as of September 30.)

Schwab U.S. Dividend Equity ETF (SCHD, $42, 3.1%) pays more income than the average U.S. stock fund, but it doesn’t take excessive risks. The fund tracks an index of high-quality companies that have paid dividends for at least 10 consecutive years. An expense ratio of 0.07% a year makes it the cheapest dividend-focused ETF you can buy.

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iShares Core High Dividend ETF (HDV, $81, 3.7%) holds a big chunk of its assets in energy and consumer stocks. The ETF also owns plenty of health care and technology stocks, adding some growth potential to the mix. The fund charges 0.08% per year.

iShares U.S. Preferred Stock ETF (PFF, $39, 5.6%) won’t deliver big gains. But its yield crushes the payouts of most common stocks. About two-thirds of its distributions count as qualified dividends, meaning investors pay top federal income tax rates of just 15% or 20%. For more about holding preferreds, see 4 Good Preferred Stocks Yielding 6% or More.

Daren Fonda
Senior Associate Editor, Kiplinger's Personal Finance
Daren joined Kiplinger in July 2015 after spending more than 20 years in New York City as a business and financial writer. He spent seven years at Time magazine and joined SmartMoney in 2007, where he wrote about investing and contributed car reviews to the magazine. Daren also worked as a writer in the fund industry for Janus Capital and Fidelity Investments and has been licensed as a Series 7 securities representative.