Dividend mutual funds come in two varieties: actively-managed dividend funds and dividend index funds. In an actively-managed dividend fund, one or more portfolio managers will select several dividend stocks with the intention of meeting the fund's stated objectives. It's important to verify that a fund's investment objective is consistent with your personal investment goals. These goals can range from generating a high-level of current income to generating a more modest level of income with the goal of long-term capital appreciation.
Similarly, dividend indices are also constructed with goals in mind. The difference, however, is that an index is based on rigid criteria (in other words, a fund manager cannot make an exception to the criteria, even if their intuition tells him or her so). The S&P 500 Dividend Aristocrats is a good example of a dividend index: "The S&P 500® Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years," according to Stand and Poor's.
Like all mutual funds, dividend funds can have unexpected tax consequences. Investors may wish to balance their dividend investments by holding some dividend mutual funds and some dividend paying stocks
We consider any stock- or balanced mutual fund out-yielding the S&P 500 to be a "dividend fund."