Is there any obvious reason why commodity ETFs such as GLD, SLV, USO never pay dividends?
Is it because the commodity market attracts a lot of speculator/traders/hedgers and not exactly long term investors?
-
3because the underlying does not pay dividends. does your gold grow in your basement? – base64 Apr 30 '15 at 16:01
-
On that thought, the real reason is outlined in the prospectus. Not one of those commodities ETF write Futures contracts against it's physical holdings. Find me a commodities ETF that states it will write futures contracts for income and I will show you a commodities based ETF that can pay dividends. – Knuckle-Dragger Apr 30 '15 at 17:31
-
Got it. Although I would imagine options contracts as opposed to futures contracts as source of dividends. Futures don't sell for a premium, so how writing a futures contract would generate cash for dividend? Option contracts are more relevant here, no?google.ca/finance?q=NASDAQ%3ASLVO&ei=9WdCVYm4JIausQeroICoAQ – Victor123 Apr 30 '15 at 17:37
-
Interesting read - safehaven.com/article/18315/… – Knuckle-Dragger Apr 30 '15 at 18:57
No, it is not for the reason you suspect. Some long-term investors might actually allocate a small percentage of a diversified portfolio to a commodity ETF, as a hedge.
Rather, the obvious reason (and it really should be obvious!) is that a hunk of metal or a barrel of oil don't by themselves generate any cash flow. There simply is nothing to distribute.
Worse yet—it actually costs money to store and maintain physical commodities somewhere. Even if the commodity ETF is synthetic and uses derivatives, and no physical storage is required, there are bankers with mouths to feed.
If you are interested in dividends, I suggest you look at a novel legal structure known as a "corporation". Many corporations are adept at generating profits, and some even distribute a portion of their profits.
There are even corporations who specialize in extracting commodities from the ground, if you want to still have exposure to hunks of metal, etc. while getting some yield. Bear in mind that a company that extracts something from the ground isn't the same thing as the thing from the ground. They won't necessarily move together.
answered Apr 30 '15 at 16:06
