Question about dividend yield on funds.

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kd88
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Question about dividend yield on funds.

Post by kd88 » Wed Jun 13, 2018 2:38 pm

I just opened up a taxable brokerage account in addition to a Roth IRA I already have and invested a few thousand into SCHB. I can't seem to find alot of information on expected annual returns for this fund and keep seeing large and small differences in what it says. It says a dividend yield of 1.57%. Is that the amount of returns annual? If this is the case, why would it be better to invest in funds when an online High Yield Savings Account is paying 1.60% annually?

Sorry, I'm new to this so I kind of would like an explanation. Or if someone that owns a total stock market fund could give me an idea on how theirs has done over 5, 10, 20 years. I'm investing this fund in here long-term hopefully. Like 15-20 years.

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Pajamas
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Re: Question about dividend yield on funds.

Post by Pajamas » Wed Jun 13, 2018 2:44 pm

With an ETF like SCHB, you not only get the dividend but also hopefully some capital appreciation or an increase in the value of your shares. With a savings account, you only get the interest. Since your investment is in a tax-advantaged account, you shouldn't have to pay any taxes on either dividends or capital gains as long as you follow the rules.

http://www.morningstar.com/etfs/arcx/schb/quote.html

Click on "10Y" just above the chart and you can see how the share price has grown in the past. Of course, the future may be different.
Last edited by Pajamas on Wed Jun 13, 2018 2:46 pm, edited 1 time in total.

sport
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Re: Question about dividend yield on funds.

Post by sport » Wed Jun 13, 2018 2:45 pm

A stock mutual fund owns a "basket" of stock in various companies. Some of these stocks pay a dividend that the fund pays out to you, minus the expenses of the fund. What you are really interested in is the growth in value of the stocks. So, there are two parts to the total return of a stock fund: dividends and growth. For a total stock market fund, we invest on the expectation that there will be significant growth over time. In the short run, the fund may actually have negative growth, ie. the shares may lose value. In the longer term we expect to see growth and we expect the growth to be more than the dividends, which are somewhat puny by themselves.

Nate79
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Re: Question about dividend yield on funds.

Post by Nate79 » Wed Jun 13, 2018 2:51 pm

Mutual funds, like SCHB are composed of many companies. In the case of SCHB it is composed of 2318 different companies and follows the Dow Jones U.S. Broad Stock Market Index. The holdings of SCHB, the individual companies will be distributing dividends throughout the year. Mutual funds/ETFs are required by law to distribute those dividends collectively to the fund holders on a certain schedule. The funds accumulate until the distribution date. This growth in value (reflected in the NAV or price of the fund) is continuously tracked and is part of the value of the fund. When the mutual fund distributes those dividends the price of the fund drops the exact same amount as the payout in dividends because of that drop in the assets of the fund.

In addition, the companies of the mutual fund may increase or decrease in value and share price. Thus a mutual fund may increase or decrease in value/price based on those holdings.

Neither the dividend nor the price increase is a guarantee. This is the risk of holding stocks.

This is different than a bond where there is a contractual obligation to pay certain amounts on a specific schedule. (of course depending on the bond or bond fund they may have their own type of risk)

dbr
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Re: Question about dividend yield on funds.

Post by dbr » Wed Jun 13, 2018 2:55 pm

Returns into the future are difficult to predict. Indeed, the best picture of future returns is to view each year's return as a random draw from a distribution of possible returns that may have some average and some spread about the average. Thus the growth of the holding is a compounding of these random selections. Worse that that, there is no guarantee the distribution from which the returns are drawn stays constant over time. Nor do the returns have to be independent samples as there can be serial correlation over time. Certainly the last 1, 3, 5, 10 year actual returns are not even remotely a prediction of the next 1, 3, 5, or 10 year returns.

There is a literature on the subject of what future returns might be for various investment. If you want some numbers one place to consult might be here: https://portfoliosolutions.com/latest-l ... n-forecast The mean return for US stocks might be around 7% nominal with a standard deviation of maybe 20%. The forecast doesn't identify what kind of statistical distribution to try for forecasting purposes. There are lots of other forecasts and lots of discussion.

Return comprises dividends and capital gain in share value. It is not important to distinguish the two. If for some reason an estimate of dividend yield is needed, then probably the best estimate is to assume the payout to be constant in dollars per share and the yield, which is the dividend divided by the share price, to vary as the share price varies.

delamer
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Re: Question about dividend yield on funds.

Post by delamer » Wed Jun 13, 2018 2:56 pm

Do a search on “schb distributions” to see what it has paid out in previous quarters.

As others have noted, you gain two ways with a stock fund/ETF like SCHB — dividends and capital gains. The dividends are an important part of the gains, but the capital gains (price appreciation) will make up most of the gains in the long run.

Are you reinvesting your dividends?

You should read a couple basic books on investing, like those under “Suggested Reading” on this site. The fact that you tried to establish an equivalency between the return on a basket of stocks and a high-yield savings account suggest that you really aren’t familiar with how the stock market works.

dbr
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Re: Question about dividend yield on funds.

Post by dbr » Wed Jun 13, 2018 2:57 pm

I would add that if you withdraw the dividends then the growth of the investment will be less. Standard predictions of growth of investment assume compounding of the full return with dividends reinvested.

kd88
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Re: Question about dividend yield on funds.

Post by kd88 » Wed Jun 13, 2018 3:00 pm

delamer wrote:
Wed Jun 13, 2018 2:56 pm
Do a search on “schb distributions” to see what it has paid out in previous quarters.

As others have noted, you gain two ways with a stock fund/ETF like SCHB — dividends and capital gains. The dividends are an important part of the gains, but the capital gains (price appreciation) will make up most of the gains in the long run.

Are you reinvesting your dividends?

You should read a couple basic books on investing, like those under “Suggested Reading” on this site. The fact that you tried to establish an equivalency between the return on a basket of stocks and a high-yield savings account suggest that you really aren’t familiar with how the stock market works.
Yes in fact I just set this up today and it asked me if I wanted to reinvest the dividends. I put "yes". I hope that was the right thing?

dbr
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Re: Question about dividend yield on funds.

Post by dbr » Wed Jun 13, 2018 3:01 pm

Just a another curiosity is that for an investment with an annual return of about 4% in dividends and 4% in capital gains, after 30 years about 70% of the compound growth can be attributed to the dividends and 70% to the capital gains.

kd88
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Re: Question about dividend yield on funds.

Post by kd88 » Wed Jun 13, 2018 3:04 pm

delamer wrote:
Wed Jun 13, 2018 2:56 pm
Do a search on “schb distributions” to see what it has paid out in previous quarters.

As others have noted, you gain two ways with a stock fund/ETF like SCHB — dividends and capital gains. The dividends are an important part of the gains, but the capital gains (price appreciation) will make up most of the gains in the long run.

Are you reinvesting your dividends?

You should read a couple basic books on investing, like those under “Suggested Reading” on this site. The fact that you tried to establish an equivalency between the return on a basket of stocks and a high-yield savings account suggest that you really aren’t familiar with how the stock market works.
This is what I was actually trying to do, but it's hard to find on Schwab site. Or it states it in a terminology I don't understand quite yet. When I do a search on Vanguard for a Vanguard fund like VTI - there is a certain section where you can look at annual percentage history returns for this fund and it will show me 2017: this percentage, 2016: this percentage etc. Actually I think this was for their mutual funds and not ETFs but it's same idea.

dbr
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Re: Question about dividend yield on funds.

Post by dbr » Wed Jun 13, 2018 3:04 pm

kd88 wrote:
Wed Jun 13, 2018 3:00 pm
delamer wrote:
Wed Jun 13, 2018 2:56 pm
Do a search on “schb distributions” to see what it has paid out in previous quarters.

As others have noted, you gain two ways with a stock fund/ETF like SCHB — dividends and capital gains. The dividends are an important part of the gains, but the capital gains (price appreciation) will make up most of the gains in the long run.

Are you reinvesting your dividends?

You should read a couple basic books on investing, like those under “Suggested Reading” on this site. The fact that you tried to establish an equivalency between the return on a basket of stocks and a high-yield savings account suggest that you really aren’t familiar with how the stock market works.
Yes in fact I just set this up today and it asked me if I wanted to reinvest the dividends. I put "yes". I hope that was the right thing?
That depends completely on what you would do with the dividends otherwise. If you withdraw and spend them, then obviously your investment will not grow as fast as otherwise. If you reinvest the dividends in something else you will get the combined growth of whatever money ends up in what asset. You probably don't want to just accumulate the dividends in cash, but a person might invest the dividends in a different asset in order to rebalance the proportion of the holdings. In your case it is probably best to reinvest the dividends in the fund they came from.

kd88
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Joined: Wed May 23, 2018 2:56 pm

Re: Question about dividend yield on funds.

Post by kd88 » Wed Jun 13, 2018 3:07 pm

dbr wrote:
Wed Jun 13, 2018 3:04 pm
kd88 wrote:
Wed Jun 13, 2018 3:00 pm
delamer wrote:
Wed Jun 13, 2018 2:56 pm
Do a search on “schb distributions” to see what it has paid out in previous quarters.

As others have noted, you gain two ways with a stock fund/ETF like SCHB — dividends and capital gains. The dividends are an important part of the gains, but the capital gains (price appreciation) will make up most of the gains in the long run.

Are you reinvesting your dividends?

You should read a couple basic books on investing, like those under “Suggested Reading” on this site. The fact that you tried to establish an equivalency between the return on a basket of stocks and a high-yield savings account suggest that you really aren’t familiar with how the stock market works.
Yes in fact I just set this up today and it asked me if I wanted to reinvest the dividends. I put "yes". I hope that was the right thing?
That depends completely on what you would do with the dividends otherwise. If you withdraw and spend them, then obviously your investment will not grow as fast as otherwise. If you reinvest the dividends in something else you will get the combined growth of whatever money ends up in what asset. You probably don't want to just accumulate the dividends in cash, but a person might invest the dividends in a different asset in order to rebalance the proportion of the holdings. In your case it is probably best to reinvest the dividends in the fund they came from.
That's what I thought too, since I'm only investing in one fund for now. If the amount grows into something much bigger over the years, I may start investing in other funds, but this is good for now.

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