Dividends on funds

GeoffTF

EthicsGradient said:

"We are expected to believe that for both the income and accumulation shares, we calculate the number of shares that we held on the previous ex-dividend date and multiply it by the dividend rate for this ex-dividend date to get the dividend for this ex-dividend date."

Well, yes, if you don't buy any more shares in the intervening year, then that does work.

This is the nub of the matter and I believe that you are right here. The LifeStrategy prospectus provides the key piece of information:

"Holders of Income Shares are entitled to be paid the distributable income attributed to such Shares on any relevant annual allocation dates.

Holders of Accumulation Shares are not entitled to be paid the income attributed to such Accumulation Shares, but that income is automatically transferred to (and retained as part of) the capital assets of the relevant Fund on the relevant annual accounting dates. This is reflected in the price of an Accumulation Share."

https://fund-docs.vanguard.com/lifestrategy-prospectus.pdf

For both share classes, it seems that the dividends are collected up during the year. At the end of the year, the accumulated sum is paid out for the income shares and reinvested for the accumulation shares. For a fixed number of accumulation shares, we need to calculate the equivalent number of income shares at the beginning of the year, because any dividends earned during the year are not reinvested until the end of the year. (As far as interest on the accumulating dividends is concerned, hopefully Vanguard receives it and we benefit from it.)

EthicsGradient said:

But your earlier calculation of "100,000 / 2025 reinvestment price * 2025 dividend" is meaningless. 100,000 / 2025 reinvestment price tells you how many shares a new £100,000 gets you in 2025. But multiplying that by the 2025 dividend tells you nothing - that dividend is now "ex", and you won't get any of it for your £100,000 investment. The only relation between 2025 reinvestment price and 2025 dividend is "how many new shares would I get if I reinvested the dividend at once?"

It does not matter if the dividend is "ex" if we are holding a fixed number of shares. The Reinvestment Prices quoted by Fidelity for the accumulation shares are identical to the prices quoted by Vanguard for the corresponding ex-dividend dates. That suggests that the dividends are reinvested on the ex-dividend date.

EthicsGradient said:

"We can calculate the dividends for both share classes by multiplying the number of shares held on the ex-dividend date by the dividend rate for that date."

But you never used a figure of "the number of shares held on the ex-dividend date".

The number of shares held on the ex-dividend date is the capital valuation of the holding divided by the share price.

"Number of shares for £100K = 100,000 / 241.3149 = 414.396293."

I compared Vanguard and Fidelity's numbers for the income shares:

Ex-div           Vanguard  Fidelity
01 Apr 2025    4.8107    4.8107
02 Apr 2024    4.6698    4.6714
03 Apr 2023    3.9184    3.9184
01 Apr 2022    3.3474    3.3474
01 Apr 2021    2.7865    2.7865
01 Apr 2020    3.5192    ---------
01 Apr 2019    3.2293    3.2293
03 Apr 2018    2.7393    2.7393

They disagree for 02 Apr 2025.

GeoffTF

I have gone through the same exercise with Vanguard Developed World ex UK. The prospectus contains the same words regarding dividend reinvestment as for VLS80. I have again calculated the dividends for the income shares and accumulation shares, on the assumption that £100K was invested in both funds on the previous ex-dividend date. The dividends are the same to four significant figures. It is clear for both these funds that Vanguard collects the dividends for an underlying fund during the accounting year. It distributes them for the income shares and reinvests them on the ex-dividend date for the accumulation shares.