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What are dividend stock funds?

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Quick Answer

Dividend stock funds invest in stocks that pay dividends to shareholders. These types of funds come in two types: dividend index funds and actively managed dividend funds.

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Actively managed dividend funds feature managers that choose multiple dividend-paying stocks to meet the objectives of the fund. Investors should ensure that the goals of the fund are compatible with their own personal goals, whether that means making a lot of money now or making a modest amount now with the possibility of capital appreciation over time. Dividend index funds are also based on an objective, but the criteria are set, meaning that managers are not permitted to make exceptions on the basis of their intuition. One example of a dividend index fund is the S&P 500 Dividend Aristocrats.

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