Understanding ETF Dividends: What to Expect

It is difficult to determine the dividend on ETFs without first understanding what type of ETF is being purchased. An ETF is an Exchange Traded Fund, meaning it is actually more like a portfolio of a variety of investment option. The ETF trades at the value of the index of its holdings during a given trading day. Depending on what the ETF consists of, then, there is a different expected dividend.

Bond ETFs

One popular type of ETF is a government bond ETF, and this will not pay dividends in the same way a fund consisting of stocks will. ETFs made up of government bonds, though, tend to be more stable over time. They provide a consistent, expected return on investment. Though this return is predictable, it is not a high return option.

Commodity ETFs

An ETF that consists of various commodities will have a higher potential return and higher dividend payments. The downside with this option is the increased risk of purchasing commodities, which tend to be more susceptible to market swings. ETFs are not typically open to private investors. They are provided as an option to institutional investors. If you are a client of an institution with a good record in commodities trading, you may benefit from higher dividends with a commodity ETF.