Mutual Fund Yield

Mutual fund yield is a measure of the income return of a mutual fund. It is calculated by dividing the annual dividend income distribution payment by the value of a mutual fund’s shares. Mutual fund yields vary with the fund’s market value and changes to the annual dividend distribution. The mutual fund yield is typically calculated daily with the fund’s net asset value which is determined after the market closes each day. 

Mutual fund yield can be a leading characteristic to consider for income investors. Mutual fund yield calculations typically include any type of income paid from a mutual fund over a one year period. The mutual fund dividend distribution is determined by the board of directors which approves and publicizes the distribution for investors.

All types of mutual funds pay dividend distributions. In an equity mutual fund, the distribution is usually taken from dividends paid by the stocks in the portfolio. In a bond mutual fund the dividend distribution often includes interest paid on bond investments in the portfolio. Investors seeking high yield mutual fund investments have a wide range of options to choose from in the investable market.

Mutual fund yield is often quoted as a forward yield or a trailing twelve month yield. The forward mutual fund yield multiplies the most recent dividend distribution by the fund’s expected one year dividend schedule. The trailing twelve month dividend yield is the sum of the dividends paid over the past twelve months divided by the value of one mutual fund share. Mutual funds often pay monthly or quarterly distributions.

Consider the following:

Assume that a mutual fund has a current market price of $20 per share and paid $0.04 in monthly dividends over the past year. The trailing twelve month mutual fund yield would be calculated by dividing the annual dividends paid by the share price. Thus, the yield would be $0.48 / $20 = 0.024, or 2.4%. 

Now consider the forward mutual fund yield. Assume that the mutual fund has a current price of $20 but the mutual fund has just increased its monthly dividend to $0.05. The forward mutual fund yield would be calculated by dividing the expected annual dividend of $0.05 x 12 by the share price. Thus, the forward yield would be $0.60 / $20 = 0.03 or 3%.

Investors in high yield mutual funds should also pay close attention to their fund’s return calculations. Different sources for performance reporting can use varying methodologies. For a comprehensive assessment of the fund’s performance, investors can use total return. Different from standard return, total return takes into consideration all dividend distributions paid to the fund.

Investors have a wide range of income paying mutual funds to choose from in the investable market. Below are examples of top yielding mutual funds.

AB All Market Alternative Return (AARYX)

The AllianceBernstein All Market Alternative Return mutual fund is one of the highest yielding mutual funds in the investable market. The mutual fund invests in equities, fixed income and derivatives. It has a trading price of $8.23. Its trailing twelve month yield is 19.87%.

Vanguard High Dividend Yield Index (VHDYX)

The Vanguard High Dividend Yield Index is an index fund. It seeks to track the holdings and return of the FTSE High Dividend Yield Index. It has a trading price of $32.86. Its trailing twelve month dividend yield is 2.84%.

T. Rowe Price Emerging Markets Bond (PRELX)

The T. Rowe Price Emerging Markets Bond mutual fund invests in bonds of emerging market countries. It has a trading price of $6.75. Its trailing twelve month yield is 5.74%.