How are dividends paid in ETFs?


Quick Answer

Dividend-paying exchange traded funds disburse dividends to investors of record on a monthly or quarterly basis, according to ETF Database. Investors have the option of receiving dividends in cash or reinvesting the dividends. Investors must own an investment prior to the ex-dividend date to receive a dividend, explains Dividend.com.

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Full Answer

For example, the SPDR S&P 500 ETF's ex-dividend dates are the third Fridays of March, June, September and December, notes ETF Database. If the ex-dividend date falls on a non-business day, the ex-dividend date becomes the previous business day, explains ETF Database. The dividend payment date occurs at the end of each quarter.

Investors who opt to reinvest dividends back into the ETF create a form of leverage by investing with what is essentially borrowed money, according to ETF Database. Dividend-paying ETFs own a bundle of stocks that pay dividends to the ETF, which the ETF passes along to its investors. Since the stocks held by the ETF pay dividends on different dates, the ETF holds the dividends in escrow until the payment date. In the case of the SPDR S&P 500, these funds are held in a non-interest bearing account. Prospective investors can find out the ex-dividend dates for an ETF by consulting the fund's prospectus.

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