Trying to get my head around dividends in open ended funds...
Posted: April 4th, 2017, 9:57 am
I was thinking about how inflows and outflows of cash could effect the divi payments and really struggling to get my head around it. So I decided to just work through an over simplified and exaggerated example. I thought I'd share it here to make sure I'm thinking correctly and my conclusions are right. In this example I've assumed ex-divi date = payment date just to keep it simple. And the funds assets are static in value.
01JAN £100k in fund invested in companies paying £5000 Divis (100 units)
31JAN £2000 of those divs have been paid (40%)
01FEB £100k added to fund and invested...
Fund now £200k paying £10000 Divis (200 units)
31MAR Other 60% of divis have been paid = 0.6 x 10000 = £6000
Total Dividend = 2000 + 6000 = £8000
shared between 200 units = £40
Without inflow = 5000 / 100 = £50
So it seems that inflows reduce the next dividend payment and hence outflows I assume increase it. I think I understand that there is no unfairness going on as the prices paid buying the assets pre or post ex-divi date equalize it all out. I just wonder how much volatility in the payment for inc units is added.
I'm mostly just curious to understand it all but I'm also specifically thinking about the Woodford income focus. Thinking I may be better of waiting until the main inflows have happened before I buy in. Worried there might be a wait for the income boost vs his other funds lower divi I'll be selling.
01JAN £100k in fund invested in companies paying £5000 Divis (100 units)
31JAN £2000 of those divs have been paid (40%)
01FEB £100k added to fund and invested...
Fund now £200k paying £10000 Divis (200 units)
31MAR Other 60% of divis have been paid = 0.6 x 10000 = £6000
Total Dividend = 2000 + 6000 = £8000
shared between 200 units = £40
Without inflow = 5000 / 100 = £50
So it seems that inflows reduce the next dividend payment and hence outflows I assume increase it. I think I understand that there is no unfairness going on as the prices paid buying the assets pre or post ex-divi date equalize it all out. I just wonder how much volatility in the payment for inc units is added.
I'm mostly just curious to understand it all but I'm also specifically thinking about the Woodford income focus. Thinking I may be better of waiting until the main inflows have happened before I buy in. Worried there might be a wait for the income boost vs his other funds lower divi I'll be selling.