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A little confused here. The distribution for Vanguard Intermediate-Term Tax-Exempt Fund (VWITX) for June was $0.03537, compared with May's distribution of $0.03622. I did a little reading and found this:
Monthly Distribution Rate
While the SEC yield's calculation is standardized, the formula for distribution rate – also called "distribution yield" – can vary. Most fund groups quote distribution rate as a monthly 30-day figure. Like SEC yield, a fund's 30-day distribution rate uses the previous month's income to project an annualized figure.
Formula for calculating the Monthly Distribution Rate
Even though SEC yield and 30-day distribution rate cover the same time period, it's not unusual for those two numbers to differ. One reason is the way they treat certain classes of securities. Preferred stock, bonds purchased at a discount or a premium, foreign bonds, and mortgage-backed securities are all handled differently by each calculation.
Annual Distribution Rate
Because of the potential discrepancies, many popular publications – Money Magazine and Morningstar, Inc.'s fund reviews, for example – prefer to use an annual distribution rate that represents the actual income paid out over the past twelve months.
Formula for calculating the Annual Distribution Rate
Since they cover different time frames, the two methods usually produce different yields. For instance, in a falling interest-rate environment, a fund's 12-month distribution rate is likely to be higher than its 30-day rate, since the annual figure includes income earned during the prior months when rates were higher.
Does this mean that monthly distributions should go up (given rising interest rates), but maybe not for some time? Thanks,
Last edited by JSMill
on Sat Jun 29, 2013 8:41 am, edited 1 time in total.
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My take home message is that the direction of monthly distributions is unpredictable.
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My experience with Vanguard bond funds, including Intermediate Tax-Exempt, is that the distribution will be a little lower in months where the last business day is before the end of the month. Yesterday, the 28th, was the last business day of June, whereas May's last business day was the last day of the month. Remember that dividends are declared daily based on income received daily. That means you can't precisely compare each month's distribution (or even year-over-year as the last business day changes yearly for each month).
Having said that, I would not expect an immediate change in distributed interest income as interest rates change, because many bonds typically pay interest only every 6 months. I know there are some bonds in the fund, such as VRDO or ARS, which may pay weekly, but most don't.
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May has 31 days, June has 30.
If you look carefully at the distribution table
, this does indeed make a difference.
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