(11-05-2014, 01:23 AM)Concasto Wrote:(11-02-2014, 06:54 AM)Robert_NL Wrote: Keep in mind that ETF's don't necessarily increase their dividend every year. I guess SCHD will eventually cut it's dividend (as do all 'dividend growth' ETFs).
They will only cut their dividends if the stocks they hold do the same. No different than holding a basket of DGI stocks.
Then tell me why SDY and VIG didn't increase their dividends every year, they hold a large basket of dividend growers as well.
(11-05-2014, 01:43 AM)daat99 Wrote:(11-05-2014, 01:23 AM)Concasto Wrote:(11-02-2014, 06:54 AM)Robert_NL Wrote: Keep in mind that ETF's don't necessarily increase their dividend every year. I guess SCHD will eventually cut it's dividend (as do all 'dividend growth' ETFs).
They will only cut their dividends if the stocks they hold do the same. No different than holding a basket of DGI stocks.
That is not entirely accurate.
They will reduce their dividends if the weight of the companies change as well.
For simplicity lets think of an ETF that holds 2 fictional companies ABC and CBA.
company ABC pays 10% dividend and CBA pays 5% dividend.
If the ETF holds 50% ABC and 50% CBA than the ETF will deliver a 7.5% dividend.
If the ETF will change the composition and hold 75% CBA and 25% ABC than they'll need to reduce the dividend to 6.25% instead of the prior 7.5% dividend.
In this scenario even though both companies left their dividends alone the ETF holder will get less dividends.
You can't control how ETFs decide to buy/sell stocks so you can't count of smooth dividends even if none of the companies reduce the dividends.
It's true that this is just like owning the 2 companies yourself but from my perspective I'll have to figure out if the dividend I got means everything is OK or something is wrong by manually looking on each of the companies the ETF holds.
Personally I try to avoid dividend ETFs but I can certainly understand why someone would like to use them for instant diversification.
This is the exact reason indeed. Also explains why it almost always happens in march, because they rebalance at the start of the year. They cut their winners and buy more of the stocks that lost previous year. This can (and almost always) will get you a smaller dividend.