Catching Year-End Payouts with ETFs

You’re not sure how long the market uptrend will stay intact. You’re wary of a spooky October. Nevertheless, you’re strongly considering an allocation to regional stock ETFs in the next 2-4 weeks.

Perhaps what you need, then, is a bit of insurance.

More specifically, a number of regional ETFs make larger semi-annual or annual payouts in December, effectively increasing the dividend payment you’d receive over a comparable investment with a quarterly payout schedule.

For instance, let’s say you want exposure to the MSCI Emerging Market Index. You know that the iShares MSCI Emerging Market Fund (EEM) has larger trading volume than Vanguard Emerging Market (VWO), which might result in a better execution price. On the other hand, VWO costs a little less. What to do?

You take a look at the distribution schedules.

EEM pays out on a semi-annual basis, giving the emerging market investor reason to expect 1.5% in December. Meanwhile, Vanguard is still serving up its VWO distributions on an annual basis such that… the emerging market investor can expect 3.0% in a lump sum come December.

Keep in mind, these “moves” are more for traders. Still, when every little bit can make a difference… the end-of-year distribution schedule is worthy of inspection.

In some cases, there won’t be a difference. Claymore BRIC (EEB) and SPDR BRIC 40 (BIK) are extraordinarily similar over time. And they both have the same year-end annual payout. You might anticipate 1.6% in December from BIK or EEB.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[mbkelly75:]

Dividend Capture for ETFs - Good idea to keep in mind and check. Thank You.

Oct 08 11:32 AM

[mws:]

Nice article... thanks.

Oct 08 12:00 PM

[mjrcme:]

Be careful.
The payout will be taxable and the ETF price will go down by the payout amount.
One could also buy the ETF on Ex Dividend morning to catch a short term rebound bounce then flip or hold.

Oct 08 05:56 PM

[tipalia:]

nice observation , ty .

Oct 08 07:24 PM

[Ron Rowland:]

Everyone needs to understand that the ETF's NAV will drop by EXACTLY the same amount as the distribution. You are not "capturing" anything except possibly some additional tax implications.

Oct 09 09:11 AM