Where are my dividends? It's a question that comes up whenever
dividend payments don't hit our investment accounts when we
With exchange-traded funds (ETFs), the timing of your dividend
payments is definitely impacted by a subtle but important detail:
the fund's legal structure.
ETFs generally use the following types of structures: Open end
fund, unit investment trust, grantor trust, partnership, or ETN.
Besides the timing of dividends paid, each kind of structure has
its own unique set of financial risks, tax treatment, and
consequences. Since this article is about dividends, let's focus on
Popular ETFs like the SPDR Dow Jones Industrial Average ETF
(NYSEARCA:DIA), SPDR S&P 500 (NYSEARCA:SPY), and the SPDR
S&P MidCap 400 (NYSEARCA:MDY) are organized as unit investment
trusts or "UITs." Why does this matter? Because the UIT structure
does not reinvest dividends in the fund, but instead holds
dividends until they're paid to shareholders, typically every
The table below illustrates this. You'll notice how there's a
2-4 weekly delay for DIA, MDY, and SPY between the record date and
the actual dividend payment date.
UITs must fully replicate the indexes they track and receiving
income from loaned securities is not permitted.
If we contrast the SPY ETF with one of its direct peers, the
iShares Core S&P 500 ETF (NYSEARCA:IVV) you'll instantly notice
how the timing of dividend payments is different.
IVV's final dividend payment of 0.92 cent per share in 2012
was paid on 12/26 to shareholders of record on 12/21. Why so much
faster than SPY? It's because dividends in open end funds like IVV
are immediately paid to shareholders, whereas SPY's unit investment
structure holds onto dividends thereby creating a dividend
What's the bottom line?
For investors who are still in the accumulation phase of their
investment plan, none of this might matter. But to income dependent
retirees who are counting on timely dividend payments to sustain
their lifestyle, the timliness of dividend payments
does make a difference. And for that reason, it might make
better sense from a dividend perspective for this latter group to
stick with ETFs that follow an open-end structure. This is
especially true if you don't want any delays in the timing of your
Check out ETFguide's
Income Mix Portfolio
, which generated $10,422 in annual income in 2012. The portfolio
is designed to generate high monthly income using covered call
options. The Jan.2013 trade garnered $654 in monthly income.
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