I want to invest in a high dividend ETF. Two ETF's that I'm comparing are:
SCHD
- Distribution Yield TTM: 2.57%
- SEC Yield (30 day): 2.92%
- Portfolio Turnover: 15%
- Net Expense Ratio: 0.07%
- 1 Year tax cost ratio: 1.76%
SPYD
- Distribution Yield TTM: 3.86%
- SEC Yield: 4.09%
- Portfolio Turnover: 40%
- Net Expense Ratio: 0.07%
- 1 Year tax cost ratio: 1.76%
SPYD pays higher dividends, but it also has a higher turnover rate. When stocks are turned over they may have capital gains. Capital gains incur taxes. From my understanding, the extra dividends I get from SPYD would by offset by the more taxes I pay on the turnover. However, both SCHD and SPYD seemed to be paying the same taxes for the past 1 year.
The Morningstar Tax Cost Ratio measures how much a fund's annualized return is reduced by the taxes investors pay on distributions. Mutual funds regularly distribute stock dividends, bond dividends and capital gains to their shareholders. Investors then must pay taxes on those distributions during the year they were received.
Can you explain why I would pay the same taxes when the turnover rates are so different on these two ETF's? At the end of the day, I want to choose the ETF that gives me the best dividend yield net taxes.