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3 Dividend Mutual Funds for Spectacular Returns in 2021

Zacks Equity Research
·4 min read

The coronavirus pandemic-induced market volatility last year pushed investors toward dividend stocks or funds that could provide consistent income. Walking into 2021, hopes of rapid vaccination are raising hopes of return to normal, which again is helping stocks pick up gradually.

However, it is wise to wait a little longer before betting on leisure and other harder-hit cyclical sectors. Even though these sectors are going to make a comeback, investors should consider adding funds that pay a solid dividend and also provide exposure to growth.

Thanks to the Fed’s three consecutive rate cuts and steps to help the economy battle the pandemic last year, a low-rate environment is prevailing and this has made generating income from bonds a challenge. Hence, these high dividend-yielding mutual funds not only generate income but also lower risk in an investor's portfolio. Valuations in the stock market this volatile is risky and dividend funds/stocks provide some downside projection that may be possible this year.

For investors aiming at dividend income, dividend-paying mutual funds are a better bet than individual stocks. These funds combine the available dividend income from multiple stocks.

3 Top Picks

Given the current scenario, we have shortlisted three dividend yielding mutual funds with a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that could gain from the turbulent markets. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily the reasons why one should be parking money in mutual funds (read more:  Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Franklin Gold and Precious Metals Fund Class A FKRCX aims for capital appreciation and current income is a secondary consideration. The fund invests majority of assets in securities of gold and precious metals operation companies located globally. FKRCX has a dividend yield of 9.97%.

This Zacks sector - Precious Metal product has a history of positive total returns for more than 10 years. Specifically, FKRCX has returned 19.7% and 20% over the past three and five-year period, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FKRCX is a non-diversified fund and has a Zacks Mutual Fund Rank of #1 and an annual expense ratio of 0.93%, which is below the category average of 1.37%.

American Funds American High-Income Trust Class F-3 HIGFX aims for high level of current income along with capital appreciation as secondary objective. The fund invests primarily in higher yielding and generally lower quality debt securities, including corporate loan obligations. It may also invest a portion of its assets in securities of issuers domiciled outside the United States. HIGFX has a dividend yield of 6.05%.

This Zacks sector - High Yield-Bonds product has a history of positive total returns for more than 10 years. Specifically, HIGFX has returned 5.9% over the past three-year period. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

HIGFX has a Zacks Mutual Fund Rank of #1 and an annual expense ratio of 0.34%, which is below the category average of 1.00%.

Ivy High Income Fund Class Y WHIYX aims for total return through a combination of high current income and capital appreciation. The fund invests primarily in a diversified portfolio of high-yield, high-risk, fixed-income securities, including secured and unsecured loan assignments, loan participations and other loan instruments, of U.S. and foreign issuers. WHIYX has a dividend yield of 6.06%.

This Zacks sector - High Yield-Bonds has a history of positive total returns for more than 10 years. Specifically, WHIYX has returned 4.5% and 7.5% over the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

WHIYX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.95%, which is below the category average of 1.00%.

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Zacks Investment Research