From Bogleheads

Dividends are payments a corporation makes to its shareholders. Mutual fund dividends are distributions to a mutual fund shareholder, representing their share of interest and dividends the fund receives from the assets it holds.

Stock dividends


A dividend is the distribution of a company's earnings to its shareholders and is determined by the company's board of directors. Dividends are often distributed quarterly and may be paid out as cash or in the form of reinvestment in additional stock.
The dividend yield is the dividend per share and is expressed as dividend/price as a percentage of a company's share price, such as 2.5%.
Common shareholders of dividend-paying companies are eligible to receive a distribution as long as they own the stock before the ex-dividend date.


Dividends are payments a corporation makes to its shareholders. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, it can put that money to two uses: the business can either re-invest it (called retained earnings), or it can pay it to shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend.[1] In other words, dividend payments are based on many factors, and decided by the corporation issuing the stock.

Deciding to invest in dividend paying stocks rather than stocks that do not pay dividends is uncertain at best. There are many reasons to support either position, as well as tax implications for both the issuing corporation and the stockholder.[2]

See also: Bogleheads forum topic: "What is so great about dividends? A lot of misinformation?".

Mutual fund dividends

When a mutual fund pays you a dividend, it is not a payment "for keeping your money in the fund for a year," but rather it is a net after expense distribution to you of your share of interest and dividends the fund received from the assets it holds. The fund must make these distributions, and it is required to decrease the net asset value (NAV) accordingly, because after paying a dividend the fund holds less wealth. This is true of most equity funds, but not of bond funds.

Your interest in holding a fund is the total return on your investment, which is increase in NAV plus value of distributions. If the fund NAV at the end of the year, after distributions, is actually less than the fund NAV at the beginning of the year, then the capital gain return for that year may have been negative. If you add to that the total of distributions received, the result may still be negative, or it may be positive.

Generally, you can expect both stock and bond funds to have a positive total return in a year, but your actual results in a year can vary widely, and do include negative total returns in some years.

Dividend distributions

Dividend distribution in a mutual fund represents not only bond interest but also stock dividends accumulated in the NAV since the previous distribution.[3]

Dividend distributions accumulate in the fund's NAV throughout the year. Then when paid, the fund is reduced by that dividend amount. (This is not true of most Vanguard bond funds, as noted above. See net asset value (NAV) for more detail.) If you reinvest dividends, then you simply receive additional shares that equal the dividend amount times the number of shares you already owned.

You can think of these distributions as a bookkeeping tool to get stock dividends and bond interest income off the books and out to investors, either by reinvestment in additional shares or as a cash payment.

For example: You own 500 shares at $11 per share at year-end, for a total worth of $5,500. There is a $1 per share dividend. Therefore, net of accumulated dividends in the fund, your fund is worth $10 per share. Assuming dividends are reinvested, you will get $500 ($1 x 500 shares) reinvested in the fund. $500 / $10 per share = 50 additional shares. Now you own 550 shares at $10 each, which equals your original $5,500.

Except for taxes in a taxable account, there is no reason to "time" the dividend in a mutual fund.

Dividend distributions and fund prices

If your fund is paying out a dividend or capital gains distribution (sometimes quarterly, often annually), its NAV will drop by the per share amount of the distributions on the ex-dividend date.[4] Your economic position does not change because of the distributions, regardless of whether you re-invest the distributions in the fund or take them in cash. Substantial drops in NAV from distributions most often occur in December, when many funds are paying annual dividend and capital gains distributions, especially if the distributions are large.

Dates and timing

There are four dates associated with dividends: [5]

  • Declaration date - the company announces that it will be issuing a dividend in the future
  • Record date - the company examines its current list of shareholders to determine who will receive dividends
  • Ex-dividend date - this determines which of these shareholders will be entitled to receive the dividend
  • Payable date - the dividend is actually paid to eligible shareholders

If you own shares on the record date, you will receive the dividend.

For mutual funds, the record date is one business day before the ex-dividend date. For ETFs, the record date is one business day after the ex-dividend date. The two day difference between mutual funds and ETFs is due to the two-day settlement period for ETFs (and stocks). Therefore, the following holds for both mutual funds and ETFs:

  • If you buy shares on or after the ex-dividend date, you will not receive the dividend. If you buy shares before the ex-dividend date, you will receive the dividend.
  • If you sell shares on or after the ex-dividend date, you will receive the dividend. If you sell shares before the ex-dividend date, you will not receive the dividend.

Vanguard says that their payable date will usually be two to four business days after the record date.[6]

For mutual funds, Vanguard uses the term Reinvest date instead of Ex-dividend date.

End-of-year distributions

See also


  1. See also: Dividend, from Wikipedia
  2. Fischer Black (1976). "The Dividend Puzzle". Journal of Portfolio Management, 2. p. 58. Retrieved December 13, 2023. From Google Books.
  3. Bogleheads forum topic: "I don't understand how I made any money 2030 fund"
  4. Kevin Johnston (January 25, 2021). "What Happens if You Sell a Dividend Paying Stock After Receiving a Dividend?". Zacks.com. Retrieved December 13, 2023.
  5. Jason Fernando (November 8, 2023). "Ex-Dividend Date: Definition, Key Dates, and Example". Investopedia. Retrieved December 13, 2023.
  6. For example: "VTSAX distribution page". Vanguard.com. Retrieved December 13, 2023.

External links