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Markets haven’t been able to hold on to the rally this year as multiple factors have been denting investors’ confidence. Tech stocks, majorly responsible for the rally last year, have been bleeding on fears of rising interest rates as the Fed gears up to control inflation. Moreover, geopolitical tensions arising from the ongoing Russia-Ukraine conflict have been further taking a toll on stocks.

Although the U.S. economy somewhat regained speed, with the GDP growing at a faster rate than in the prior quarter, ballooning inflation has made bulls skittish and given hopes to bears this year. Given this situation, income-seeking investors should go for funds that have more exposure to stocks providing handsome dividends. Thus, funds like PGIM High Yield Fund- Class Z (PHYZX - Free Report), John Hancock Funds II High Yield Fund Class 1 (JIHDX - Free Report), and Franklin High Income Fund Advisor Class (FVHIX - Free Report) are likely to benefit in the near term.

Rate Hike Fears, Geopolitical Tensions Impacting Markets

It has been great going for the markets, with already two months of the year gone. The S&P 500 is already in correction territory, while the Dow is almost on the brink of entering the zone. Rising prices have been a cause of concern, with the Fed gearing up for multiple rate hikes to control rising inflation.

The inflation reading hit a 40-year high in January and rate hikes are inevitable. Experts believe that the Fed will go for at least four rate hikes in 2021, beginning March. Moreover, bond markets have been tumultuous since the Federal Reserve signaled that monetary tightening and asset purchases would accelerate this year. This has kept investors on edge, which has been taking a toll on markets. Growth stocks have been the biggest casualty of this situation.

On the other hand, rising geopolitical tensions have been taking a toll on markets. Growing tensions between Russia and Ukraine have been making investors shaky as they have already seen markets taking a big hit, particularly in February. Things now look gloomier with Russia invading Ukraine on Feb 23, after Putin ordered Russian troops to move into Ukraine.

Moreover, the markets haven’t been stable, given that the economic reopening slows down every time a new variant of the coronavirus emerges. Despite the vaccination drive in full swing, the pandemic is far from over,  with the economy yet to get back on its foot completely. This has seen economists predict growth this year, which has been further worrying investors.

Top 3 Dividend Mutual Funds to Buy Now

Rising interest rates, growing geopolitical tensions, and continuing fears of the coronavirus may lead to further uncertainty in the near future. Given this scenario, income-seeking investors should go to mutual funds that invest in dividend-paying equities to get the regular cash they need.

We have selected three such mutual funds that offer promising dividend yield, have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds.

PGIM High Yield Fund- Class Z invests the majority of its investable assets in a diverse portfolio of high-yield fixed-income securities. PHYZX’s 3-year and 5-year annualized returns are 6.7% and 5.8%, respectively. Annual expense ratio of 0.54% is lower than the category average of 0.95%. PGIM High Yield Fund- Class Z has a Zacks Mutual Fund Rank #1.

John Hancock Funds II High Yield Fund Class 1 invests the majority of its net assets in high-yield securities. JIHDX has the option of investing in both foreign bonds and other fixed-income instruments denominated in different currencies. John Hancock Funds II High Yield Fund Class 1 has a 3-year and 5-year annualized return of 6.3% and 5.2%, respectively. The annual expense ratio of 0.84% is lower than the category average of 0.95%. JIHDX has a Zacks Mutual Fund Rank #1.

Franklin High Income Fund Advisor Class aims for high current income. FVHIX also aims for capital appreciation as much as possible, consistent with the fund's principal goal by investing primarily in high yield, lower-rated debt securities. Franklin High Income Fund Advisor Class has a 3-year and 5-year annualized return of 6.1% and 5%, respectively. The annual expense ratio of 0.61% is lower than the category average of 0.95%. FVHIX has a Zacks Mutual Fund Rank #1.