There are some funds where the dividend yields are pretty much off the charts: http://www.nasdaq.com/dividend-stocks/

How do these funds pay these astronomical dividends? What is the catch that is not obvious?

  • Sometimes, I high dividend yield means that the share price suddenly went down sharply. That doesn't mean future dividends will be at the same rate, though. – Peter K. Feb 9 '15 at 18:07
  • Also, stocks will sometimes give a large one time special dividend. So the indicated dividend might be a better idea of what to expect. Though even that is not perfect. – rhaskett Feb 9 '15 at 18:41

Look at their dividend history. The chart there is simply reporting the most recent dividend (or a recent time period, in any event). GF for example: http://www.nasdaq.com/symbol/gf/dividend-history

It's had basically two significant dividends and a bunch of small dividends. Past performance is not indicative of future returns and all that. It might never have a similar dividend again.

What you're basically looking at with that chart is a list of recently well-performing funds - funds who had a good year. They obviously may or may not have such a good year next year.

You also have funds that are dividend-heavy (intended explicitly to return significant dividends). Those may return large dividends, but could still fall in value significantly. Look at ACP for example: it's currently trading near it's 2-year low. You got a nice dividend, but the price dropped quite a bit, so you lost a chunk of that money. (I don't know if ACP is a dividend-heavy fund, but it looks like it might be.)

GF's chart is also indicative of something interesting: it fell off a cliff right after it gave its dividend (at the end of the year). Dropped $4. I think that's because this is a mutual fund priced based on the NAV of its holdings - so it dividended some of those holdings, which dropped the share price (and the NAV of the fund) by that amount. IE, $18 a share, $4 a share dividend, so after that $14 a share. (The rest of the dividends are from stock holdings which pay dividends themselves, if I understand properly). Has a similar drop in Dec 2013. They may simply be trying to keep the price of the fund in the ~$15 a share range; I suspect (but don't know) that some funds have in their charter a requirement to stay in a particular range and dividend excess value.

  • Oh boy, why would some one be restricted to be in a certain range (on the upside)? – Victor123 Feb 9 '15 at 18:28
  • 1
    Well, it depends on the Fund, but funds that are expected to generate dividends might be required to try to keep the net asset value around a certain amount, and dividend gains above that. Like I said, I'm not sure on that one, as I'm not really that familiar with dividend-heavy funds (as I prefer tax-friendly options!). – Joe Feb 9 '15 at 18:30
  • Thanks. In Canada, Canadian dividends are very tax friendly :) – Victor123 Mar 26 '15 at 19:57

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