Low-dividend paying ETFs - are there any?

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markierussell
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Low-dividend paying ETFs - are there any?

Post by markierussell »

Hi All,

For tax reasons I'm looking for a good index (or passive) ETF that minimizes dividend payout. I know there are many tax-managed funds, some of which do that. But few if any seem to have ETF versions. The only tax-managed Vanguard ETF I can find is VEA, a share class of Vanguard Tax-Managed International Fund. But it invests in foreign equities and does not say that it minimizes dividends (it mentions capital gains only). Any suggestions?

Thanks!

M
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fredflinstone
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Post by fredflinstone »

VOT
VBK
QQQQ

all have a very low dividend yield.
Topic Author
markierussell
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Low-dividend paying ETFs - are there any?

Post by markierussell »

Fred, thanks! Did you get those by looking at their SEC yields? Guess it stands to reason that ETFs that track smaller companies would receive less dividends.

Does anyone know of an ETF with low dividend yield that tracks the whole U.S. market or large caps? I suppose it would have to be specially managed for that since by their nature those stocks would normally pay a fair amount of dividends.

Thanks,

M
Wagnerjb
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Re: Low-dividend paying ETFs - are there any?

Post by Wagnerjb »

markierussell wrote:Hi All,

For tax reasons I'm looking for a good index (or passive) ETF that minimizes dividend payout. I know there are many tax-managed funds, some of which do that. But few if any seem to have ETF versions. The only tax-managed Vanguard ETF I can find is VEA, a share class of Vanguard Tax-Managed International Fund. But it invests in foreign equities and does not say that it minimizes dividends (it mentions capital gains only). Any suggestions?

Thanks!

M
The only fund that I am aware of that minimizes dividends is the Vanguard Tax Managed Capital Appreciation fund. But that is a mutual fund, and I am not aware of any ETFs that actively manage the dividend yield. They tend to be linked to an index, thus no active tax management. Of course, some indices may have a naturally lower dividend yield, but that isn't from active management for tax efficiency.

Best wishes.
Andy
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altruistguy
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Re: Low-dividend paying ETFs - are there any?

Post by altruistguy »

Yes -- it sure would be nice if there existed some low-dividend ETFs. But to my knowledge, there still are none. While there certainly may be some out there with lower yields, that doesn't mean that they are specifically managed to minimize dividends.

In addition to the Vanguard Tax-Managed Capital Appreciation fund, I believe that the Vanguard Tax-Managed Balanced Fund uses the exact same dividend-lessening strategy for its stock component.

DFA's tax-managed funds used to do this too. But when the Bush tax-cuts hit about ten years ago, lessening the problem with dividends (qualified dividends, anyway), they dramatically lessened (to the point of apparent elimination) their attempts to lessen yield of those funds. It remains to be seen whether the recent increase in marginal tax rate for qualified dividends for high-income investors will spur them to start reducing yield in their tax-managed funds again.

I wouldn't hold my breath for further good investing options along these lines. There's much more of a market out there for high-yield investing vehicles than for low-yield. My advice at this point -- use the two Vanguard Products where appropriate and don't worry about this dividend issue too much beyond that. Since there exist no good answers at this point, it doesn't seem prudent to continue worrying about it too much.

Eric E. Haas
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grabiner
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Re: Low-dividend paying ETFs - are there any?

Post by grabiner »

markierussell wrote:For tax reasons I'm looking for a good index (or passive) ETF that minimizes dividend payout. I know there are many tax-managed funds, some of which do that. But few if any seem to have ETF versions. The only tax-managed Vanguard ETF I can find is VEA, a share class of Vanguard Tax-Managed International Fund. But it invests in foreign equities and does not say that it minimizes dividends (it mentions capital gains only). Any suggestions?
Are you a non-resident alien so that you pay 30% tax on all dividends? If not, then you have a tax reason for minimizing dividends, but also for maximizing the fraction which are qualified. VEA doesn't do much to minimize dividends, but it does have 100% qualified dividends, unlike most foreign funds, so it will lead to lower tax bills.

But all the low-dividend ETFs either have high expenses (which reduce the dividend in a way which doesn't benefit you) or track low-dividend sectors of the market. If you don't need to use ETFs, you could use Vanguard Tax-Managed Capital Appreciation, but even there, I would guess that 500 Index will save you as much in expenses as it costs in taxes, and Total Stock Market Index is as good as 80% Tax-Managed Capital Appreciation and 20% Tax-Managed Small-Cap.

It is possible to have low-dividend ETFs in your taxable account and high-dividend ETFs or funds in your 401(k); you could have growth ETFs in taxable and value ETFs in tax-deferred.
Wiki David Grabiner
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CABob
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Re: Low-dividend paying ETFs - are there any?

Post by CABob »

I haven't looked to compare specifically, but what about VGEQX Vanguard Growth Equity fund?
Bob
jestrauch
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Re: Low-dividend paying ETFs - are there any?

Post by jestrauch »

Thanks for raising the question, Markie.

I am running into the same issue, as I would like to generate income in my IRAs and 401k, and none in my brokerage account, in part to try to avoid the kick-up in Medicare premiums, that comes with higher income.

The ETFs, suggested in previous emails (QQQ VOT and VBK), with low dividends currently yield from 1.09% to 1.35%. The other alternative would be to build a portfolio of no and low dividend stocks, that you may expect to hold for the long term, managing capital gain/loss recognition if you need to draw on the account. If you can build a well-balanced portfolio at least by sectors, it should reflect the risk of the market as a whole. You would avoid management fees, but have to incur some transactions costs. (If you add $250k to Schwab, they may give you 100 free trades over the next year.)

I would appreciate any other input others might have on your question.

Thanks.

J
wanlo
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Re: Low-dividend paying ETFs - are there any?

Post by wanlo »

I was looking something alike, IWO seems to have a low dividend.
If going to mutual funds, my broker insists that his Luxemburg-based funds do not pay taxes on dividends.

Now it is straight.forward to assume that dividends payed go against capital appreciation?
If not, why avoir dividends even if suffering the 30%?
a+
NRA/No tax treaty/US based accounts/age 42/Parque Chas/
dfitz247
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Re: Low-dividend paying ETFs - are there any?

Post by dfitz247 »

What is wrong with just using the VTI? I would consider that ETF tax efficient, but if not use other accounts to get your large cap allocation and use the VB, VEA, and VO.
malabargold
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Re: Low-dividend paying ETFs - are there any?

Post by malabargold »

Brkb, similar to large cap ETF
Zero dividends
ConfusedbutEducated
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Re: Low-dividend paying ETFs - are there any?

Post by ConfusedbutEducated »

I am a Non Resident Alien and subject to 25% wiyjolding on ETF's domiciled in US. Like the fellow boglehead searching to minimize this tax drag

Option 1: Buy Irish Domiciled ETF's - Charles Schwab doesnt offer them on their portal : (
Option 2 : Buy US domiciled ETF with low dividend pay out ; unfortunately as NRA i dont have access to Mutul Funds or Target Date Funds

Can someone advice ? Thank you much
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