The Inner Workings of Dividend ETFs

Dividend ETFs can be a great way to add some stability and income to your portfolio. That aside, they still do need a little understanding before you jump in. An ETF that owns stocks will collect the dividends based on the number of shares of the underlying companies it owns over the course of time, explains Michael Rawson for Morningstar. These dividends are gathered and then get paid out to shareholders. But how are these amounts figured? Rawson sheds some light: Dividend yield is represented by the sum of all dividends paid by the fund over the past 12 months, divided by the previous month-end net asset value (NAV). When researching a dividend yield, there are two numbers that come up: an average dividend yield and a dividend yield. The difference between the fund’s dividend yield and the weighted average dividend yield on the underlying stocks in the portfolio is.... Read more