How can I compare the performance of a high dividend funds with other funds and or an index
I've been trying to do some investment due diligence. I'm looking at funds for a family member that needs some dividend income. Some of the high dividend funds that were recommended to me seem to have done pretty poorly when compared to the S&P. (i looked them up on yahoo finance and google finance). As I was going through them, it occurred to me that the amount the value of the fund was below the S&P was constant with the dividend it paid out. I suppose this makes sense, companies pay dividends which make the stock worth less? My question is two fold.
Is there any place where I can see a true graphic comparison of a funds value + dividend as compared to the major indexes?
If dividends make the value of a stock go down proportionally to what is paid out ( as compared to the market ), then what is the point of a dividend? would that not be the same a just selling a portion of the stock?
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Vanguard (and probably other mutual fund brokers as well) offers easy-to-read performance charts that show the total change in value of a K investment over time. This includes the fair market value of the fund plus any distributions (i.e. dividends) paid out. On Vanguard's site they also make a point to show the impact of fees in the chart, since their low fees are their big selling point.
Some reasons why a dividend is preferable to selling shares: no loss of voting power, no transaction costs, dividends may have better tax consequences for you than capital gains.
NOTE: If your fund is underperforming the benchmark, it is not due to the payment of dividends. Funds do not pay their own dividends; they only forward to shareholders the dividends paid out by the companies in which they invest. So the fair market value of the fund should always reflect the fair market value of the companies it holds, and those companies' shares are the ones that are fluctuating when they pay dividends.
If your fund is underperforming its benchmark, then that is either because it is not tracking the benchmark closely enough or because it is charging high fees. The fact that the underperformance you're seeing appears to be in the amount of dividends paid is a coincidence.
Check out this example Vanguard performance chart for an S&P500 index fund. Notice how if you add the S&P500 index benchmark to the plot you can't even see the difference between the two -- the fund is designed to track the benchmark exactly. So when IBM (or whoever) pays out a dividend, the index goes down in value and the fund goes down in value.
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