When selecting a dividend-paying fund, investors should take into account various factors.

• Investors who want income may turn to dividend-paying strategies.
• Experts advise that when deciding between funds, it's crucial to assess whether the strategy aligns with your objectives and the costs involved.

For investors who want income, dividends may provide an answer.

Shareholders receive payments, known as dividends, which are a portion of the company's earnings.

Fidelity Investments' vice president and branch leader in Hingham, Massachusetts, Leanna Devinney, stated that dividends may offer more potential for appreciation compared to other income-generating investments, such as certificates of deposit, bonds, or Treasurys.

Devinney stated that dividends can be very appealing because they provide the chance for both growth and income.

Dividend investment options can be represented as single company stocks or funds, such as exchange-traded funds or mutual funds.

Notably, not all companies offer dividends when owning individual stocks, Devinney said.

ETFs and mutual funds can offer a wider range of dividend-paying securities at lower costs, according to her.

When deciding to invest in dividend-paying strategies to achieve income goals, investors should take certain factors into account.

What kind of dividend-paying fund fits my goals?

According to Daniel Sotiroff, senior analyst for passive strategies research at Morningstar, there are two types of dividend funds to choose from.

Sotiroff stated that high dividend yield strategies aim to generate higher income compared to the market average by focusing on companies that pay out more dividends relative to their stock prices.

Companies that pay high dividends have often been in existence for many years, such as , for instance.

Instead of choosing dividend yield strategies, investors may prefer dividend growth strategies that concentrate on stocks predicted to steadily increase their dividends in the future. Such companies are typically newer, such as or , Sotiroff stated.

To be clear, both of these strategies have trade-offs.

"Sotiroff stated that the risks and rewards are distinct between the two, and they can be executed well or poorly."

If you're a young investor seeking to expand your funds, a dividend appreciation fund may be more suitable. However, if you're nearing retirement and aiming to generate income from your investments, a high-yield dividend ETF or mutual fund is likely a better option.

Some fund strategies aim to achieve both current income and future growth.

How expensive is the dividend strategy?

Another important consideration when deciding among dividend-paying strategies is cost.

A highly rated Morningstar dividend fund is well diversified, meaning investors won't have a lot of exposure to one company. Additionally, it's "really cheap" with a low expense ratio of six basis points, or 0.06%. The expense ratio measures the annual cost of owning a fund.

According to Sotiroff, the Vanguard fund has historically provided a yield of about 1% to 1.5% more than the broader U.S. market, which is "pretty reasonable."

Investors can use the Vanguard fund as a benchmark, even if they do not want to add it to their portfolio, he said.

Sotiroff warned that if you're investing in a higher yield than the Vanguard ETF, it could indicate increased volatility and risk exposure.

The fund that is highly rated by Morningstar and has an expense ratio of 0.06% is the one that has provided 1% to 1.5% more than the market, according to Sotiroff.

Both Vanguard and Schwab funds follow an index and are therefore managed passively.

Managers of active funds are identifying companies' likelihood to increase or cut their dividends, which may be an alternative option for investors.

"Professional oversight is provided with the higher expense ratio funds, according to Devinney."