A lot of users in the EasyEquities community love dividends. I’ve seen a number of investors celebrate dividend dates on social media, but this is not just limited to shares. In fact, Exchange Traded Funds often pay out dividends in the form of distributions.
What are distributions?
This is simply the ETF version of dividends. To quickly recap, Exchange Traded Funds are a collection of shares and instruments that an ETF issuer (the people who create and manage ETFs) collect into one or more themed funds. Within that fund, companies may pay out dividends. What happens to those dividends? The come to you, the investor, as a form of distribution at a date when the issuer decides.
How do distributions make their way into my account?
There are three vital dates to consider when it comes to ETF distribution, namely: Last Day to Trade, Ex-Dividend Date, and Dividend Payment Date.
Last Day to Trade (LDT):
This is the last date in which you get to buy the ETF if you wish to get distributions on that ETF. Anyone who buys thereafter would not qualify to receive distributions. It must be a mathematical nightmare to try and calculate who gets distributions, so they set a date well before they payment dates.
Ex-Dividend Date (Ex-Div):
Any purchases beyond this date on the ETF will not receive the next round of distributions.
Dividend Payment Date:
This is the date in which the ETF/issuer distributes funds to investors’ brokers. EasyEquities may then pay investors on the platform a day later (within 24 hours).
However, not all ETFs are created equal. Some Exchange Traded Funds reinvest the dividends they receive on the shares in their fund, and redistribute the proceeds in the form of giving investors more shares in the ETF. Thereby growing the investor’s exposure to profit when the time comes to sell through the power of compound interest.
And there you have it, Moolah in the account via ETF investments. The principles which govern ETFs are mostly the same as for individual shares. For more info on the benefits of ETF investing, check out our brand new EasyETFs website. This platform should guide your understanding of how Exchange Traded Funds work. It even allows you to compare ETFs and against one another, even those issued by different ETF providers.