Annual vs quarterly dividends from Schwab fund

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dn123
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Annual vs quarterly dividends from Schwab fund

Post by dn123 » Mon Dec 25, 2017 11:46 pm

So I noticed that Schwab's SCHF (International Equity)
(https://www.schwabfunds.com/public/csim ... ymbol=SCHF) pays out its dividends annually. This kinda bugs me. In the accumulation phase, you miss out on the slight compounding because dividends are withheld up to 3 quarters. In the de-accumulation phase, you miss out on the dividends from shares that you sold out earlier during the year if you don't wait until the dividend payment date. Ive noticed that several of Schwab's other funds do this as well.

Is there some upside to this situation that Im not considering?

navyitaly
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Re: Annual vs quarterly dividends from Schwab fund

Post by navyitaly » Tue Dec 26, 2017 12:07 am

If you don’t like the fund and how it operates buy another fund.

And yes you are missing the converse. In a bear market you are saving on the slight losses you may get w quarterly etc so it all evens out.

dn123
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Re: Annual vs quarterly dividends from Schwab fund

Post by dn123 » Tue Dec 26, 2017 12:13 am

navyitaly wrote:
Tue Dec 26, 2017 12:07 am
If you don’t like the fund and how it operates buy another fund.
Unfortunately, its one of the funds in my Schwab Intelligent Portfolio. But that is what I was thinking. I suppose I really should compute the actual opportunity cost before I get too bothered by this.
And yes you are missing the converse. In a bear market you are saving on the slight losses you may get w quarterly etc so it all evens out.
I was thinking there are likely more up years than down, so it wouldn't quite even out, but fair enough.

Longtermgrowth
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Re: Annual vs quarterly dividends from Schwab fund

Post by Longtermgrowth » Tue Dec 26, 2017 12:16 am

Interesting. The dividends are baked into the net asset value (NAV) of the fund, so it really doesn't matter how often the distributions are.

The NAV of the fund decreases by the amount of the distribution, but this can be hard to see with market movement throughout the day.

dn123
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Re: Annual vs quarterly dividends from Schwab fund

Post by dn123 » Tue Dec 26, 2017 12:26 am

Longtermgrowth wrote:
Tue Dec 26, 2017 12:16 am
Interesting. The dividends are baked into the net asset value (NAV) of the fund, so it really doesn't matter how often the distributions are. The NAV of the fund decreases by the amount of the distribution, but this can be hard to see with market movement throughout the day.
Thanks. Forgot about that point.

Longtermgrowth
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Re: Annual vs quarterly dividends from Schwab fund

Post by Longtermgrowth » Tue Dec 26, 2017 12:34 am

This actually made me think of posts by some members, wishing for a fund that has no distributions, just to avoid a taxable event during accumulation.

I seem to remember reading that some countries allow funds to do that, but not in the U.S. unfortunately...

dn123
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Re: Annual vs quarterly dividends from Schwab fund

Post by dn123 » Tue Dec 26, 2017 12:39 am

Longtermgrowth wrote:
Tue Dec 26, 2017 12:34 am
This actually made me think of posts by some members, wishing for a fund that has no distributions, just to avoid a taxable event during accumulation.

I seem to remember reading that some countries allow funds to do that, but not in the U.S. unfortunately...
I seem to remember a podcast with Meb Faber where they tried to come up with a portfolio of companies that didn't offer dividends for this very reason. But damn, I forgot his conclusion.

Longtermgrowth
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Re: Annual vs quarterly dividends from Schwab fund

Post by Longtermgrowth » Tue Dec 26, 2017 12:47 am

I imagine it would give up the diversification us bogleheads want and know we need. I like dividend paying stocks for a number of reasons, and want them in my portfolio, but wouldn't it be cool to have the option to select a fund that holds them with no distributions?
Just watch the NAV of the fund go up over time and sell shares as needed, depending on tax situation and cash flow needs.

dn123
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Re: Annual vs quarterly dividends from Schwab fund

Post by dn123 » Tue Dec 26, 2017 12:56 am

Longtermgrowth wrote:
Tue Dec 26, 2017 12:47 am
I imagine it would give up the diversification us bogleheads want and know we need. I like dividend paying stocks for a number of reasons, and want them in my portfolio, but wouldn't it be cool to have the option to select a fund that holds them with no distributions?
Just watch the NAV of the fund go up over time and sell shares as needed, depending on tax situation and cash flow needs.
Even better, wouldn't it be great to have a switch on the fund telling it to hold and reinvest dividends (tax free) or disburse them (taxable). I love dividends also, since they form a backup cashflow in the case of emergency/job loss. But until that happens, I don't really want them. GoCurryCracker (FI/RE blogger) talked about that desire as well, http://gocurrycracker.com/fewer-dividends-please/

Longtermgrowth
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Re: Annual vs quarterly dividends from Schwab fund

Post by Longtermgrowth » Tue Dec 26, 2017 1:07 am

Hah, a fund with a distribution on/off switch. That would be pretty good, especially for those of us that can get by on the dividend yield of our portfolio, not having to bother selling shares.

I'm going to look up which countries allow funds to not distribute dividends. If I don't post it here, hopefully someone else will. I think the one I read about on this forum was the UK, but not positive...

Edit: looking it up so far, I may be completely wrong on what I remember reading in a thread many months ago. Now if I could only find that old thread... Also, I usually try to ignore sarcasm in forums, but those replies to my posts are just dripping in sarcasm :( I was only trying to help.

ralph124cf
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Re: Annual vs quarterly dividends from Schwab fund

Post by ralph124cf » Tue Dec 26, 2017 5:15 pm

dn123 wrote:
Mon Dec 25, 2017 11:46 pm
So I noticed that Schwab's SCHF (International Equity)
(https://www.schwabfunds.com/public/csim ... ymbol=SCHF) pays out its dividends annually. This kinda bugs me. In the accumulation phase, you miss out on the slight compounding because dividends are withheld up to 3 quarters. In the de-accumulation phase, you miss out on the dividends from shares that you sold out earlier during the year if you don't wait until the dividend payment date. Ive noticed that several of Schwab's other funds do this as well.

Is there some upside to this situation that Im not considering?
Many international stocks pay dividends yearly or every six months, instead of quarterly like most U. S. stocks. Since funds must pay out all dividends to the investors, perhaps they prefer that the dividends do not vary wildly from month to month, as that could give a naïve investor an incorrect idea that the fund was quite volatile.

Ralph

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grabiner
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Re: Annual vs quarterly dividends from Schwab fund

Post by grabiner » Thu Dec 28, 2017 10:59 pm

dn123 wrote:
Mon Dec 25, 2017 11:46 pm
So I noticed that Schwab's SCHF (International Equity)
(https://www.schwabfunds.com/public/csim ... ymbol=SCHF) pays out its dividends annually. This kinda bugs me. In the accumulation phase, you miss out on the slight compounding because dividends are withheld up to 3 quarters.
You don't lose compounding. The fund can reinvest the dividends as it receives them, rather than holding them as cash. (And when it must pay a dividend in cash, it can use futures and options to stay 100% invested.)
In the de-accumulation phase, you miss out on the dividends from shares that you sold out earlier during the year if you don't wait until the dividend payment date.
You don't miss out here. Whether the dividends are accumulated in cash or paid out, they are part of the fund's assets. The fund price will decline by the dividend amount on the payment date if the market doesn't move.
Wiki David Grabiner

rgs92
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Re: Annual vs quarterly dividends from Schwab fund

Post by rgs92 » Thu Dec 28, 2017 11:04 pm

My SCHD fund [Schwab US Dividend Equity ETF] pays dividends quarterly.
I just looked and got a payout in March, June, September, and a few days ago (Dec. 22nd).
So does my SCHB [Schwab US Broad Market ETF].
These are nice funds with a 3 basis point expense ratio for SCHB and 7 bp ER for SCHD.

balofagus
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Re: Annual vs quarterly dividends from Schwab fund

Post by balofagus » Thu Dec 28, 2017 11:39 pm

Longtermgrowth wrote:
Tue Dec 26, 2017 1:07 am
Edit: looking it up so far, I may be completely wrong on what I remember reading in a thread many months ago. Now if I could only find that old thread... Also, I usually try to ignore sarcasm in forums, but those replies to my posts are just dripping in sarcasm :( I was only trying to help.
BMO in Canada offers some ETFs with an “Accumulating Units” structure that sounds like what you’re describing.

lack_ey
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Re: Annual vs quarterly dividends from Schwab fund

Post by lack_ey » Thu Dec 28, 2017 11:56 pm

grabiner wrote:
Thu Dec 28, 2017 10:59 pm
dn123 wrote:
Mon Dec 25, 2017 11:46 pm
So I noticed that Schwab's SCHF (International Equity)
(https://www.schwabfunds.com/public/csim ... ymbol=SCHF) pays out its dividends annually. This kinda bugs me. In the accumulation phase, you miss out on the slight compounding because dividends are withheld up to 3 quarters.
You don't lose compounding. The fund can reinvest the dividends as it receives them, rather than holding them as cash. (And when it must pay a dividend in cash, it can use futures and options to stay 100% invested.)
In the de-accumulation phase, you miss out on the dividends from shares that you sold out earlier during the year if you don't wait until the dividend payment date.
You don't miss out here. Whether the dividends are accumulated in cash or paid out, they are part of the fund's assets. The fund price will decline by the dividend amount on the payment date if the market doesn't move.
Yeah, exactly. This is actually only an issue for those funds using certain structures, like the old SPY (SPDR S&P 500 ETF Trust) that's actually a unit investment trust, which can't do that. Most of the ETFs you see can reinvest those dividends in the meantime.

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F150HD
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Re: Annual vs quarterly dividends from Schwab fund

Post by F150HD » Fri Dec 29, 2017 12:53 am

So I noticed that Schwab's SCHF (International Equity)
(https://www.schwabfunds.com/public/csim ... ymbol=SCHF) pays out its dividends annually. This kinda bugs me. In the accumulation phase, you miss out on the slight compounding because dividends are withheld up to 3 quarters.
You don't lose compounding. The fund can reinvest the dividends as it receives them, rather than holding them as cash. (And when it must pay a dividend in cash, it can use futures and options to stay 100% invested.)
I'd like to see the math on this.

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grabiner
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Re: Annual vs quarterly dividends from Schwab fund

Post by grabiner » Fri Dec 29, 2017 3:56 pm

F150HD wrote:
Fri Dec 29, 2017 12:53 am
So I noticed that Schwab's SCHF (International Equity)
(https://www.schwabfunds.com/public/csim ... ymbol=SCHF) pays out its dividends annually. This kinda bugs me. In the accumulation phase, you miss out on the slight compounding because dividends are withheld up to 3 quarters.
You don't lose compounding. The fund can reinvest the dividends as it receives them, rather than holding them as cash. (And when it must pay a dividend in cash, it can use futures and options to stay 100% invested.)
I'd like to see the math on this.
The math isn't that significant an issue. If a fund pays a 2% annual dividend, and doesn't invest any of the dividends it receives, it has an average of 1% uninvested. If the stock market outperforms cash by 5%, about the historical average, the fund would underperform by 0.05% on average.

However, an index fund makes an effort to track its index, and thus stays 100% invested at all times. Futures and options allow an index fund to hold cash and still track the index because of the leverage. If the fund needs to distribute a dividend or meet outflows, it pays cash, and sells futures or options contracts to stay 100% invested without selling all of the individual stocks.
Wiki David Grabiner

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