Do ETF dividend yields work out as expected e.g. for FTSE100?

isayhello

I was wondering if you own an etf in the ftse100 or sp500 and the companies from there give dividends, are you getting exactly the amounts you would if you owned each company individually e.g. 100 individual shares of the ftse 100 would yield the same as 100 shares in the ftse 100 apart from any charges?

I thought about this as the yield for some of the sp500 etf's can be close to 1% but some of the companies inside maybe paying higher yields, so do the funds work it out differently.

masonic

Some companies will be paying more than the yield of the ETF and some less. The yield is also a function of the current price, which changes from day to day, and the dividends declared by each company, which also vary over time.

There may be differences in taxation when an ETF receives a dividend vs you as an individual, and probably differences in the foreign exchange rate used for dividends in a foreign currency.

isayhello

Thanks, so in the end its not a case of losing a large amount going with the etf route than investing in them all separately? I just wondered theoretically if it's all related to the sum of all individual yields divided by the number of companies?

masonic

It will be related to the weighted sum of the yields divided by the total market cap of the index, since each company is weighted in the index by its market cap. There will be a lot more Astrazeneca than Easyjet.

tacpot12

I own a FTSE 1000 Dividend EFT, ishares IUKD. The tracking error on the yield is currently about -0.82%. 

I'm currently receiving a yield of 5.46% before charges of 0.4%, so I'm receiving 5.06% after charges, but had I bought  all the individual shares I would have received dividends of about 6.28%.

Given that there are overheads with investing in funds compared to individual shares, I'm happy to invest via a fund and lose a bit due to charges and tracking error for the convenience.

My entire portfolio doesn't quite make 5% after charges, so I should really be all invested in IUKD, but I don't have the faith in such a narrow sector of the equity market. I'm much happier with a much more diversified portfolio, and returns that are very slightly lower.  

isayhello

tacpot12 said:

I own a FTSE 1000 Dividend EFT, ishares IUKD. The tracking error on the yield is currently about -0.82%. 

I'm currently receiving a yield of 5.46% before charges of 0.4%, so I'm receiving 5.06% after charges, but had I bought  all the individual shares I would have received dividends of about 6.28%.

Thanks, @tacpot12 how did you work out the 6.28% of the 100 companies on the ftse100?

wmb194

isayhello said:

tacpot12 said:

I own a FTSE 1000 Dividend EFT, ishares IUKD. The tracking error on the yield is currently about -0.82%. 

I'm currently receiving a yield of 5.46% before charges of 0.4%, so I'm receiving 5.06% after charges, but had I bought  all the individual shares I would have received dividends of about 6.28%.

Thanks, @tacpot12 how did you work out the 6.28% of the 100 companies on the ftse100?

IUKD isn’t a FTSE100 tracker. From its holdings it looks like it draws from the FTSE350:

“The Fund seeks to track the performance of an index composed of 50 stocks with leading dividend yields from UK listed companies, excluding investment trusts.”

https://www.ishares.com/uk/individual/en/products/251807/ishares-uk-dividend-ucits-etf?switchLocale=y&siteEntryPassthrough=true

tacpot12

isayhello said:

tacpot12 said:

I own a FTSE 1000 Dividend EFT, ishares IUKD. The tracking error on the yield is currently about -0.82%. 

I'm currently receiving a yield of 5.46% before charges of 0.4%, so I'm receiving 5.06% after charges, but had I bought  all the individual shares I would have received dividends of about 6.28%.

Thanks, @tacpot12 how did you work out the 6.28% of the 100 companies on the ftse100?

I took the yield before charges and added on the tracking error (I assumed that Blackrock has the data to show what the true yield is, in order to work out the tracking error of their EFT), but as wmb194 pointed out IUKD isn't a FTSE100 tracker its a FTSE350 tracker.

However, I think that the principle at work answers your question in part. If you buy an EFT in a major stockmarket, you will not receive the same as if you bought individual shares, for at least two reasons; charges and tracking error. 

Note that, in theory, the tracking error could be a positive number, i.e. you receive more dividends from the assets that the EFT holds that you would have received if you held all the individual shares that make up the index. In my experience, the tracking error never seems to be in the customer's favour! I expect there is a technical explanation for this, but the cynic in me wonders if there is something else going on.