Dividend mutual funds can make excellent long-term investments. Companies that pay dividends have historically outperformed the S&P 500 with significantly less volatility. That's because the dividend income is a meaningful contributor to a stock's total return (share price appreciation plus dividends).
However, with so many companies paying dividends, it can be challenging to pick the best dividend stocks. That's where dividend mutual funds can help. They allow investors to own a diversified portfolio of dividend-paying stocks.
Here's a closer look at how dividend mutual funds work and some of the top dividend mutual funds to consider.
How dividend mutual funds work
A mutual fund pools investor capital into a single investment vehicle. Here are a few notable characteristics of the way dividend mutual funds work:
- Investment mandate: Mutual funds invest the capital they receive from investors in stocks, bonds, or other assets in line with their stated mandate. For example, as the name implies, a dividend mutual fund invests in a diversified portfolio of dividend-paying stocks. That gives the fund income to pay dividends to its investors, who can use the cash as they see fit, including reinvesting their dividends to buy more shares of the mutual fund.
- Fund types: There are two types of dividend mutual funds -- passively or actively managed. Passively managed dividend mutual funds are index funds that aim to track a particular dividend-related index. Meanwhile, actively managed dividend mutual funds buy and sell the top dividend stocks, striving to outperform a specific index.
- Expense ratio: Whether active or passive, mutual funds charge their investors a management fee known as the expense ratio. Passively managed mutual funds usually have a lower expense ratio than actively managed funds. As a result, these mutual funds pay a higher percentage of their dividend income to investors than actively managed funds do.
With these factors in mind, here's a closer look at some of the top dividend mutual funds.
Top high-dividend mutual funds to consider
Some mutual funds focus on owning stocks that pay dividends, especially those with high dividend yields. Funds geared toward this strategy usually make more frequent distributions, typically quarterly or, in some cases, monthly. We focused our dividend mutual fund search on those offering above-average yields or targeting companies known for delivering dividend growth.
Five standout dividend yield-focused mutual funds are:
1. Federated Hermes Strategic Value Dividend Fund
NASDAQMUTFUND: SVAAX
Key Data Points
2. Vanguard High Dividend Yield Index Fund Admiral Shares
NASDAQMUTFUND: VHYAX
Key Data Points
The Vanguard High Dividend Yield Index Fund (VHYA.X -0.42%) provides broad exposure to U.S. companies that have consistently paid above-average dividends. It emphasizes slower-growing, higher-yielding companies.
This passively managed mutual fund benchmarks its returns against the FTSE High Dividend Yield index. The index tracks stocks of U.S. companies that have paid above-average dividends for the past 12 months, excluding real estate investment trusts (REITs).
As of mid-2026, the fund had $92.3 billion of net assets and held around 560 stocks. The top five fund holdings were:
- Broadcom (AVGO -1.46%)
- JPMorgan Chase (JPM -1.52%)
- ExxonMobil (XOM +0.50%)
- Johnson & Johnson (JNJ -1.36%)
- Chevron
The fund had a 30-day SEC yield of 2.4% (more than double the S&P 500's yield at the time) and distributed dividends quarterly. Like the FTSE High Dividend Yield index, the fund weights heavily toward industries known for paying attractive dividends. Its top five sectors were financials (19.4% of the fund's holdings), industrials (13.8%), healthcare (12.9%), technology (12.3%), and consumer discretionary (10.1%).
The mutual fund has an ultra-low expense ratio of 0.08%, well below the industry average. The fund also has a minimum investment of $3,000. It's worth pointing out that Vanguard offers a similar exchange-traded fund (ETF), Vanguard High Dividend ETF (VYM -0.90%), with a slightly lower expense ratio (0.06%) and a low minimum investment of one share (around $150 as of mid-2026).
3. Vanguard Equity Income Fund Investor Shares
NASDAQMUTFUND: VEIPX
Key Data Points
4. T. Rowe Price Dividend Growth
NASDAQMUTFUND: PRDGX
Key Data Points
The T. Rowe Price Dividend Growth Fund (PRDG.X -0.34%) focuses on stocks with strong dividend records or that should increase their payouts over time.
As of mid-2026, the fund had $22.7 billion of assets and held more than 90 stocks. The top five fund holdings were:
The dividend mutual fund focuses on sectors known for paying growing dividends. Its top five sectors were information technology (22.6% of the fund's holdings), financials (19.3%), industrials and business services (14.5%), healthcare (12.9%), and consumer staples (7.1%).
The mutual fund has an expense ratio of 0.64% (about half the industry average) and a minimum investment of $2,500 for the investor class shares. T. Rowe Price also offers a Dividend Growth ETF (TDVG -0.79%) with similar holdings at a lower expense ratio (0.5%).
5. BlackRock Equity Dividend
The bottom line
Investors seeking passive income can use dividend mutual funds to achieve that goal. The strategy allows investors to own a diversified portfolio of higher-yielding, dividend-paying stocks, which should help lower their risk. Although there are many dividend mutual funds, the Federated Hermes Strategic Value Dividend Fund, Vanguard High Dividend Yield Index Fund, Vanguard Equity Income Fund, BlackRock Equity Dividend Fund, and T. Rowe Price Dividend Growth Fund stand out as the top options for people seeking an attractive income stream.
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About the Author
Citigroup is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Matt DiLallo has positions in Amazon, Apple, Broadcom, JPMorgan Chase, Johnson & Johnson, Prologis, and Visa and has the following options: short May 2026 $280 calls on Apple. The Motley Fool has positions in and recommends Amazon, Apple, JPMorgan Chase, Merck, Microsoft, Prologis, U.S. Bancorp, Vanguard High Dividend Yield ETF, and Visa. The Motley Fool recommends British American Tobacco P.l.c., Broadcom, Johnson & Johnson, and SS&C Technologies. The Motley Fool has a disclosure policy.
