Dividend-paying stocks are a favorite of investors to keep an income stream coming while their investment is maturing. Exchange traded funds (ETFs) that pay dividends do so in a variety of ways.
Although ETF investors don’t hold single stocks themselves, they’re still entitled to the dividends when they’re paid out. But how and when they’re paid out differs from fund to fund. Some pay them out by combining all the dividends paid by the companies in the ETF during the quarter and then by paying the investor shortly after the quarter ends, explains Matt Kranz for USA Today.
However, not all ETFs pay out quarterly. Some ETFs are structured so that they pay out as soon as the companies pay out the dividend. Pay-outs may be frequent, as soon as the company or stock pays them out. And then there is the opposite, where the ETF pays out only a few times, such as with foreign shares. Some foreign-dividend funds may only pay out once per year.
However, some foreign funds will pay out more frequently than that. Aryeh Katz for Investopedia says that these may work for a portfolio especially well, as they pay out dividends and add a diversification factor.
Once dividends are paid, investors can either have them reinvested or take the cash.
It is important for the investor to do the necessary homework to figure out which fund is going to suit their needs, as well as how and when dividends are paid. Don’t assume that the payout will come on a particular schedule, as each ETF operates differently.
For more stories about dividends, visit our dividend category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.