Target-date funds with equity investments typically pay dividends on a regular basis. Depending on a target-date fund's distribution policy, it may pay dividends quarterly or semi-annually. Some target-date funds allow investors to reinvest dividend distributions into fund shares instead of actually receiving cash dividends.
Target-date funds help investors build and maintain an aged-based retirement portfolio. The selection of target-date funds varies by the specified age of an investor since the funds adjust their asset allocation as time gets closer to the target date. The farther an investor is from the target date, the more aggressive and riskier a target-date fund's allocation is, with international and domestic equity investments accounting for over 80% of the overall portfolio. However, as the target date gets closer, funds reallocate more and more of their holdings into fixed-income securities, reducing the riskiness of their portfolio.
Target-Date Funds and Dividends
It is common for target-date funds to invest in numerous stocks of companies that pay dividends. For example, the Fidelity Freedom 2030 Fund ("FFFEX") is a fund of funds that allows investors to make investments with a target retirement date around 2030. As of October 2020, FFFEX allocated 70% of its assets into various Fidelity equity mutual funds and 30% of its assets into Fidelity bond mutual funds. Because the underlying Fidelity equity funds invest in stocks of companies with dividends, FFFEX receives dividends and redistributes them to its shareholders on a semi-annual basis. The last two dividend payments FFFEX made were in December 2019 and May 2020. FFFEX's trailing 12-month yield is 1.45%.