Dividends

Eternal1

Hi, I just have a question about dividends. If you invest in a fund, is it possible to still make a profit if from the dividends? Even if the fund ends the year down 5% or something?

Generally speaking, how much of the profit comes from dividends and how much comes from the % gain in the fund?

Those who have funds, do you tend to generate more profit from the dividends that it pays out or the growth of the fund itself?

Thanks.

AnotherJoe

Eternal1 wrote: »

Hi, I just have a question about dividends. If you invest in a fund, is it possible to still make a profit if from the dividends? Even if the fund ends the year down 5% or something?

If dividends are higher than the drop, self evidently. Dividends are rarely above 6% or so and could be close to zero, depends on the fund .

Generally speaking, how much of the profit comes from dividends and how much comes from the % gain in the fund?

Depends which fund you have ! it can't usefully be generalised

Those who have funds, do you tend to generate more profit from the dividends that it pays out or the growth of the fund itself?

Thanks.

Depends which fund you have ! it can't usefully be generalised as there are too many other variables.

If you have a higher income fund* it would tend to be from the dividends, if you have a low income fund, well that would be because you expect to get more growth from rise in prices.

And the rise in fund price will partially come from dividends the fund itself reinvests rather than pays out to you,

* let's say, above 4%

grey_gym_sock

you can't really generalize ... however, to generalize ...

for a fund that invests in shares, i'd expect dividends and capital gains to be roughly equally important, in the long term.

for a fund that invests in bonds, i'd expect the income to be more-or-less all the return you get (you might get capital gains in some periods, but capital losses in others).

AnotherJoe

grey_gym_sock wrote: »

you can't really generalize ... however, to generalize ...

for a fund that invests in shares, i'd expect dividends and capital gains to be roughly equally important, in the long term.

for a fund that invests in bonds, i'd expect the income to be more-or-less all the return you get (you might get capital gains in some periods, but capital losses in others).

that depends where the fund is invested. Some areas of the world theres much less emphasis on dividends than in the UK, so for a global fund (wildly generalising!!) I'd expect growth to be larger than dividends. But if it was large cap USA then dividends would be more important than a wider USA or global fund.

OP should start with what their requirement is.

If they are trying to limit losses by getting dividends, then they will probably forfeit growth overall (eg dividends plus growth) but have a slightly less volatile fund.

jimjames

As an example of how important dividends can be, when the FTSE reached 7000 again for the first time since 1999 it was effectively static in terms of capital value. However with dividends your investment had doubled over that time.

george4064

Short answer yes.

I have many holdings that for example display a gain of +10% which take any re-invested dividends as a 'cost', whereas in reality the dividend re-investments didn't cost me anything (as they were completely funded by previous dividends I have received) and the gain is more like 16% for example.

Therefore the actual gain taking dividend re-investment trades at zero cost shows a higher gain (or a smaller loss).