Question: How do exchange-traded funds pay out dividends?
By Ric Edelman
Q: How do exchange-traded funds pay out dividends? It’s difficult to pinpoint when the payouts show up. It looks like a three-month lag with ETFs.
Ric: It varies with each ETF. Some distribute dividends as soon as they collect them from the companies in which they invest. Others accumulate the dividends and distribute them monthly, quarterly, semi-annually or annually.
Frankly, I consider your question moot.
If you don’t need income from your investments, the timing of dividend payments doesn’t matter (since you’ll just reinvest the dividends anyway). And if you do need income from your investments, relying on dividends is a bad idea, because few ETFs pay them monthly and the amount distributed can change.
Therefore, here’s what we do for clients who need income: We reinvest the dividends and create a “systematic withdrawal plan” that provides a steady stream of income each month. To learn more about this, talk with your financial planner.