Get Your Big Yields the Right Way

If you're looking for income from your investments, an income-oriented mutual fund may sound like a perfect choice. Unfortunately, many such funds are far from your best bet.

On average, funds that focus on offering you income have not been offering you very much of it. Check out these numbers:

Data: Morningstar, Bankrate.com. Stock and fund figures are for trailing 12 months.

Seek the best
Surprisingly, you can get pretty much the same yield from most of these options. On average, the income-oriented fund isn't offering you any particular advantage. Still, that average includes a broad range of yields. Some growth and income funds pay less than 1% in dividends, while ETFs designed for high yields pay 4% or more.

Don't simply trust the word "income" in a fund's name. Look up its actual yield, and then keep an eye on its results over time, since funds can sometimes drift into different holdings and strategies. If income is of great interest to you, but isn't paramount, make sure to examine a fund's other qualities as well. Funds with disappointing-looking yields may compensate with robust capital appreciation.

Do it yourself
Alternatively, you can just assemble your own basket of healthy, growing dividend payers. These days, it's not too hard to find attractive companies with appealing yields.

Both General Electric (NYSE: GE) and Pfizer (NYSE: PFE) cut their dividends during the recent credit crisis, but their yields stand at 2.9% and 4.2%, respectively, and they've once again begun to increase them.

General Electric offers instant diversification across scores of business lines, including promising new areas such as alternative energy. The conglomerate has been growing its workforce recently, and buying new businesses such as oil-and-gas equipment maker Dresser.

When its blockbuster Lipitor loses patent protection, drugmaker Pfizer aims to offset the lost income by tapping its promising pipeline. It's also expanding into generic drugs, a business that's proved very profitable for rival Teva Pharmaceutical.

Meanwhile, Sysco (NYSE: SYY) is paying 3.4%, and hiking that dividend by an annual average of 14.6% over the past five years. Sysco is the nation's top food distributor, and though it doesn't have fat profit margins, it's a reliable grower. Utility stock National Grid (NYSE: NGG) is paying 7.5% and offers exposure to both the gas and electricity markets. Demand for energy will only rise over time.

You can build wealth with dividend income. Just be sure you know what your investments are actually delivering.