The slowdown in a couple of global economies is increasingly becoming a concern as trade-related issues and an inverted yield curve are getting on investors’ nerves. Economic uncertainty is affecting not just developed economies but also emerging markets. In such a scenario, one can opt for a steady source of income by investing in dividend-paying mutual funds.

Global Slowdown Affects Market Sentiment

The global economy is facing a string of threats at present but none as severe as the U.S.-China trade war. The tariff war that started last year in July between two of the world’s largest economies is now affecting manufacturing sectors globally because of lower demand for consumer goods.

First, new tariffs are ready to be implemented in September and October by both parties. Owing to this, business investments have taken the road south along with consumer confidence. Second, China is making strategic decisions to restructure its economic scenario as relation with the U.S. grows grim. Therefore a trade resolution in the near term is highly unlikely.

Finally, the fear of a no-deal Brexit is affecting investor sentiment as well, since it would be a significant setback for growth in the United Kingdom and Europe. The British economy sank 0.2% in the second quarter, marking its first dip in seven years. In fact, Germany’s impending recession is also because of weaker sales in Britain and China, which is a direct impact of the aforementioned factors.

Dividend Funds Could be Ideal Right Now

Given the glum outlook, it would be prudent to consider dividend-paying mutual funds for investments. First, this offers a steady source of income amid market volatility and economic uncertainty. Second, the companies that provide dividends usually have strong fundamentals and the ability to ride out economic setbacks.

Our Choices

We have, therefore, selected four dividend-paying mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three- and five-year returns. Additionally, the minimum initial investment is within $5,000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

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

Payden High Income Fund (PYHRX - Free Report) aims to provide high current income. The fund invests in a diverse pool of income-producing securities and debt instruments. The fund mostly invests in corporate high-yield bonds and companies that have promising prospects for growth. The fund carries a Zacks Mutual Fund Rank #1. Navient Corporation is among the top 10 holdings of this fund, which is attractive because of its eight-year payment history.

This Zacks sector – High Yield-Bonds product has a history of positive total returns for more than 10 years. 

PYHRX has an annual expense ratio of 0.63%, which is below the category average of 1.01%. The fund has returned 6.1% and 4.6% in three and five years respectively. PYHRX has an annualized dividend yield of 5.1% and a minimum initial investment of $5000.

PIMCO High Yield Spectrum Fund Class A (PHSAX - Free Report) aims to provide maximum total return. The fund invests the majority of its assets in high-yield securities. These securities could be warrants, convertibles, forwards or derivatives such as swap agreements, rated below investment grade by Moody's or rated similar by Fitch or S&P. The fund carries a Zacks Mutual Fund Rank #1.

This Zacks sector – High Yield-Bonds product has a history of positive total returns for more than 10 years. 

PHSAX has an annual expense ratio of 0.98%, which is below the category average of 1.01%. The fund has returned 6.5% and 4.8% in three and five years respectively. PHSAX has an annualized dividend yield of 5.2% and a minimum initial investment of $1000.

Fidelity Capital & Income Fund (FAGIX - Free Report) aims to provide income and capital appreciation. The fund invests most of its assets in equity and debt securities. It usually opts for lower-quality debt securities and invests in U.S. and non-U.S. issuers alike. The fund carries a Zacks Mutual Fund Rank #2. Bank of America is among the fund’s top 10 holdings and is an extremely stable dividend provider with further growth potential.

This Zacks sector – High Yield-Bonds product has a history of positive total returns for more than 10 years.

FAGIX has an annual expense ratio of 0.69%, which is below the category average of 1.01%. The fund has returned 7.7% and 5.8% in three and five years, respectively. FAGIX has an annualized dividend yield of 4.7% and no minimum initial investment.

Fidelity High Income Fund (SPHIX - Free Report) seeks a high level of current income. The fund invests the majority of its assets in income-producing debt securities, convertible securities and preferred stocks. The fund especially focuses on lower-quality debt securities. SPHIX carries a Zacks Mutual Fund Rank #2. Ally Financial, which is the top holding of this fund, started offering dividends in 2016. The company also has bright profit-growth estimates of 10% on an annualized basis through 2024.

This Zacks sector – High Yield-Bonds product has a history of positive total returns for more than 10 years.

SPHIX has an annual expense ratio of 0.70%, which is below the category average of 1.01%. The fund has returned 7.2% and 4.9% in three and five years, respectively. SPHIX has an annualized dividend yield of 5.4% and no minimum initial investment.