You may be well aware of the existence of dividend-paying exchange traded funds (ETFs). What you may not know is how they’re paid out.
Dividends, periodic payments made by companies to their shareholders, are available in a variety of different forms, including in ETFs.
Matt Krantz for USA Today reports that you can buy the stock of a single corporation that pays a large dividend, sit back and collect the cash, however, there are risks in relying too much on dividends from a single company. One of the primary risks is if the company hits trouble and slashes or eliminates its dividend. [Where to Find Dividend-Paying ETFs.]
Dividend-paying ETFs hold a basket of companies that make dividend payouts, spreading your risk. If one company cuts or does away with its dividend, you have a whole basket of others.
What happens after that?
ETFs collect the dividends paid by the stocks they own and then pay the dividend at one time to shareholders, usually quarterly. You can find out how often in a fund’s prospectus, which can be found using our ETF Resume tool. [Sector-Focused Dividend ETFs.]
For more stories about dividend ETFs, visit our dividend ETF category. To find ETFs that pay dividends, search for “dividend” in the ETF Analyzer. While there, you can also sort all ETFs by yield to see where other high-yielding funds might be lurking.
Tisha Guerrero contributed to this article.
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.