Dividend for VWEAX

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Dividend for VWEAX

Postby SailingAway » Sun Mar 20, 2011 10:31 am

Hello Bogleheads,
I've been lurking around for a while and reading like a mad man this last month or so. The info here is amazing. I will be posting my portfolio for critique and comments soon, but for now just had a quick question.

We hold VWEAX and appear to have been shorted on the 2/28 dividend. Wonder if any of you guys who hold VWEAX noticed anything incorrect in your distribution?

Not sure how this could happen and sent an email VG to inquire, but wondered if others saw the same thing?

Thanks and I look forward to participating here in the future,

Steve
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Re: Dividend for VWEAX

Postby YDNAL » Sun Mar 20, 2011 10:42 am

SailingAway wrote:We hold VWEAX and appear to have been shorted on the 2/28 dividend. Wonder if any of you guys who hold VWEAX noticed anything incorrect in your distribution?

Steve, welcome.

Since September 2009, the Dividend distributon from VWEAX has been consistently between $0.033 - $0.038 per share - including February.
https://personal.vanguard.com/us/funds/ ... st=tab%3A4

What you do mean by "shorted?"
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Postby SailingAway » Sun Mar 20, 2011 11:09 am

Hi Landy,

On the record date I owned 13745.704 shares and received a dividend of $99.98 on 2/28/11. It should have been 13745.704X.03307/sh = $454.57.

I keep my portfolio on M* also and noticed the discrepancy and started investigating. Makes me a little nervous, like I need to check their math, I suppose. As I said, I sent an email to my account rep and I'll see what he has to say and report back.

Thanks,
Steve
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Re: Dividend for VWEAX

Postby YDNAL » Sun Mar 20, 2011 11:20 am

SailingAway wrote:Hi Landy,

On the record date I owned 13745.704 shares and received a dividend of $99.98 on 2/28/11. It should have been 13745.704X.03307/sh = $454.57.

I keep my portfolio on M* also and noticed the discrepancy and started investigating. Makes me a little nervous, like I need to check their math, I suppose. As I said, I sent an email to my account rep and I'll see what he has to say and report back.

Thanks,
Steve
Steve,

Yes, $0.033 per share for February is right - as shown in the link from Vanguard I provided earlier.

Let us know what Vanguard says.
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Postby SpringMan » Sun Mar 20, 2011 11:29 am

Another possibility would be if some of those shares were purchased in February and you did not hold them for the entire month, then they would be prorated. Not saying that was the case. Vanguard should provide you an answer.
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Postby allancoleman » Sun Mar 20, 2011 11:42 am

In my own Vanguard Roth account with a asset allocation of 79% ( VFIJX ) & 21% ( VWEAX ) , I received a dividend distribution on 2 / 28 / 2011 of $1,410.91 on $248,435.75 invested in VWEAX as of the closing price on 3 / 18 / 2011 for a approximate dividend rate of 5.679% based on the nav closing price on 3 / 18 / 2011 which looks about right to me . :?:
Last edited by allancoleman on Sun Mar 20, 2011 11:48 am, edited 1 time in total.
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Postby DSInvestor » Sun Mar 20, 2011 11:45 am

SpringMan's suggestion may explain it. Here's a paragraph from the prospectus of the Vanguard High Yield Corporate Fund:
Fund Distributions
The Fund distributes to shareholders virtually all of its net income (interest less expenses) as well as any net capital gains realized from the sale of its holdings. The Fund’s income dividends accrue daily and are distributed monthly; capital gains distributions generally occur annually in December.
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Postby dratkinson » Sun Mar 20, 2011 1:00 pm

DSInvestor wrote:SpringMan's suggestion may explain it. Here's a paragraph from the prospectus of the Vanguard High Yield Corporate Fund:
Fund Distributions
The Fund distributes to shareholders virtually all of its net income (interest less expenses) as well as any net capital gains realized from the sale of its holdings. The Fund’s income dividends accrue daily and are distributed monthly; capital gains distributions generally occur annually in December.


In this case, I'm guessing you bought your shares 6 days before the distribution date. Does that sound correct to you?

$99(received)/$454(computed) = ~.22

.22 * 28 days (in Feb) = ~6 days

All bond funds that pay monthly dividends prorate the holding period for the month. If you don't owned your shares for the whole month, you don't receive the whole distribution. (I, too, wondered the first time I encountered this.)



Welcome.
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Postby SailingAway » Sun Mar 20, 2011 1:01 pm

That would be the answer. I guess I overlooked the "accrue daily" term of in the prospectus. I thought that all funds owned at the record date got paid the full dividend/distribution. I know my stock funds work that way, but I guess bond funds are different? Is there a rule that delineates this or is it just the policy of each fund?

A little looking around seems to answer my own question above. VAIPX no accrual, VWIUX accrual? Most of my other bonds are ETF's so nothing accrued there.

I had this fund previously, but exchanged out a few months ago and returned in February in the Admiral class this time. Anyway, doing the math for the pro ration gets me with a couple of pennies.

Thanks to all who responded.
Steve
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Postby SailingAway » Sun Mar 20, 2011 1:06 pm

Dratkinson, ...posted on top of you. Yes that is what occurred. I concur with buying the dividend. I hold VWEAX in a non-taxable account so I don't think the buying the dividend really matters. That is correct isn't it?
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Postby dratkinson » Sun Mar 20, 2011 2:05 pm

SailingAway wrote:Dratkinson, ...posted on top of you. Yes that is what occurred. I concur with buying the dividend. I hold VWEAX in a non-taxable account so I don't think the buying the dividend really matters. That is correct isn't it?


Yes, that's correct. However, by buying after the ex-dividend date and the NAV drop, your money would have gone further by purchasing a few more shares.

I cleaned up my original post to remove a tangent that did not directly address your question. (Guess I'm bad about being distracted by tangents.)

When you come back for your portfolio review after reading some of the BH-recommended books and can understand their advice, the senior investors will address the other tangential issue of owing VWEAX.

Glad there was a simple answer to your specific question.


/r
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Postby grabiner » Sun Mar 20, 2011 9:21 pm

dratkinson wrote:
SailingAway wrote:Dratkinson, ...posted on top of you. Yes that is what occurred. I concur with buying the dividend. I hold VWEAX in a non-taxable account so I don't think the buying the dividend really matters. That is correct isn't it?


Yes, that's correct. However, by buying after the ex-dividend date and the NAV drop, your money would have gone further by purchasing a few more shares.


This is not correct for a bond fund, as there is no ex-dividend date; the dividend accrues for every day you own the fund, but is only paid out monthly.

And in a fund which does pay all dividends at once, if you reinvest your dividend in the fund (and the market doesn't move), you will have the same number of shares as if you waited until after the dividend to buy your shares.
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Postby kenyan » Mon Mar 21, 2011 10:29 am

Right...bond funds accrue partial dividends for each day you have the holding. There is no NAV drop when you're paid the dividends; it's basically the accumulated interest paid over the month. If you buy just before the distribution date, your dividend will reflect that.
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Postby sscritic » Mon Mar 21, 2011 11:02 am

Here is one way to think about it. If the interest accrues to you daily, then each day interest comes into the fund as an asset of the fund but each day accrued interest becomes a liability of the fund. The NAV doesn't go up as interest comes in because it is either spent on expenses or accrues to you. When the accrued interest is paid out, the NAV doesn't drop because it lowers both the assets and the liabilities of the fund by the same amount.

On the other hand, when dividends come into a stock fund, they become assets of the fund and there are no offsetting liabilities created; the NAV goes up. When the dividends are paid out, the NAV drops.

You can see how this works by selling all of your bond fund in the middle of the month. You will get a follow-up (if the same day can be called follow-up) distribution of your accrued interest through the date of the sale. You can also sell every share but one the next to last day of the month. You will get the (almost) full month's interest on all your shares at month's end.
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Postby dratkinson » Mon Mar 21, 2011 5:49 pm

Thanks all, never knew/understood that the NAV of bond funds didn't change after a dividend.

Does this prorating of dividends and stability of NAV work the same way for the TIPS funds too, only prorated quarterly?
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Postby DSInvestor » Mon Mar 21, 2011 6:01 pm

dratkinson wrote:Does this prorating of dividends and stability of NAV work the same way for the TIPS funds too, only prorated quarterly?
The
Here's the Fund Distributions paragraph from the prospectus of the Vanguard Inflation Protected Securities Fund (VIPSX/VAIPX). This fund doesn't seem to accrue dividends daily.

Fund Distributions
The Fund distributes to shareholders virtually all of its net income (interest less expenses) as well as any net capital gains realized from the sale of its holdings. In certain circumstances, the Fund also may distribute return of capital. Income dividends generally are distributed quarterly in March, June, September, and December; capital gains distributions generally occur annually in December. In addition, the Fund may occasionally make a supplemental distribution at some other time during the year. You can receive distributions of income or capital gains in cash, or you can have them automatically reinvested in more shares of the Fund.
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Postby dratkinson » Mon Mar 21, 2011 7:12 pm

Thanks DSInvestor,

After asking the question figured I should be able to find that answer for myself.

Wandered through Vanguard's website, I found the "Statutory Prospectus" for VIPSX and your referenced text on page 20 of 47.

And on page 23 of 47 I found the Plain Talk warning against "Buying a Dividend" so it appears the NAV does drop after a dividend is paid in the TIPS funds.

How did you copy the text from the prospectus? My old system (Win98, Acrobat v6) does not allow me to copy text. (So I posted page numbers for those interested in finding the references for themselves. And the way Vanguard's website provides PDF documents, I see no way to link directly to the PDF file.)

Do you download the prospectus to your machine and then use another PDF reader that does allow you the ability to copy text? Or is this ability built into the newer versions of Acrobat?

/r
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Postby DSInvestor » Mon Mar 21, 2011 7:30 pm

Adobe Reader or Professional 6.0 should have a select text function or tool. I use Foxit Reader and use the select text tool.

Here's a manual for Adobe Reader 6.0 which talks about the select text tool:
http://www.adobe.com/enterprise/accessi ... _cg_ue.pdf
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Postby dratkinson » Mon Mar 21, 2011 8:36 pm

Thanks,

I'll learn it when I get a moment.



I did find a direct link to the VIPSX prospectus, but Vanguard didn't make it easy:
Vanguard masks the URL address in the status bar,
hides the URL address bar in the browser/Acrobat window,
and disable the browser option to save/bookmark a current page location.

But, on the last page of the VIPSX Summary Prospectus (PDF) are links to the Statutory Prospectus and the Summary of Additional Information. When you mouse-over, the URL links are revealed. Ah-ha!

VIPSX, 27 Apr 2010, Statutory Prospectus: https://personal.vanguard.com/pub/Pdf/p119.pdf

VIPSX, 27 Apr 2010, Statement of Additional Information: https://personal.vanguard.com/pub/Pdf/sai084.pdf

URL is case sensitive. Notice "Pdf" subdirectory.

It would be nice to have these links saved in our browser so we could access the documents directly, instead of needing to follow the convoluted links in Vanguard's notification emails. (Prospectus change? Click. Got it.)

You would think Vanguard would make it easier, not harder, for us to access the PDF documents for our funds. Reduces our frustration/temptation to ask for paper documents.



Full disclosure: Others probably wonder why I complain about Vanguard's hiding the direct links to the fund documents. It goes back to Vanguard's website changes and their affect on older/slower systems---3-5 minutes to load each page. So for me to retrieve one PDF document can require 20-30 minutes. I either say "I'll do it later" or I'm tempted to call for the paper documents... which I would like to avoid.
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Postby dratkinson » Wed Mar 23, 2011 9:30 am

Thanks. Worked great.


From VIPSX Statutory Prospectus (ref'd above).

Plain Talk About ‘Buying a Dividend’
Unless you are investing through a tax-deferred retirement account (such as an IRA), you should consider avoiding a purchase of fund shares shortly before the fund makes a distribution, because doing so can cost you money in taxes. This is known as “buying a dividend.” For example: On December 15, you invest $5,000, buying 250 shares for $20 each. If the fund pays a distribution of $1 per share on December 16, its share price will drop to $19 (not counting market change). You still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250 shares x $1 = $250 in distributions), but you owe tax on the $250 distribution you received—even if you reinvest it in more shares. To avoid “buying a dividend,” check a fund’s distribution schedule before you invest.


I notice you were required to clean-up the hard returns in the selected/copied text.
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Postby Grasshopper » Wed Mar 23, 2011 10:43 am

You are all gonna get spanked for using the ticker not the full name. :lol:
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