Dividends are an excellent source of passive income. High dividend mutual funds act as both a long-term and short-term investment. The long-term aspect is that your shares can increase in price. The short-term aspect is with dividends. You often only need to wait a quarter of a year to reap those yields. How do you get these benefits? The only precondition is that you choose the right mutual fund to invest. And for that, you need to understand the mechanism of dividend generation.

Dividends are generated from a mutual fund’s holdings. These stocks and bonds are its assets which generates the dividend income. How often a mutual fund releases dividends varies from one mutual fund to another. But a mutual fund should pay out dividends at least once a year, to avoid the tax liability on that income. When investing in the following dividend paying mutual funds, you are guaranteed to get dividend payments minimum once each year unless something very unusual happens.

Past market analysis gives signals that mutual funds that have invested in utilities, energy and blue chip sectors have been above average dividend payers, consistently. Here are the 5 highest paying dividend mutual funds:

Note: This list will continually be kept up to date. Also, I’m not being paid to endorse any of these companies alhough I’m am a huge Vanguard fan.

1. Voya Corporate Leaders Trust B (LEXCX)

This high dividend mutual fund was set up in 1935 with shares of 30 big US ventures. In the last decade, it has shown remarkable performance, due mainly to its stocks of energy and railroad sectors. It also holds 22 stocks of large cap blue chip companies.

Voya Investments, LLC is in the management company for this fund. It has a total asset of $1.7 billion and expense ratio of 0.50. With a Trailing Twelve Months (TTM) yield of 5.62% per year, it can be a wise choice for investors.

2. American Funds International Growth and Income (RIGGX)