Dividends4Life: Several Dividend ETFs Slash Their Dividends By Up To 22%

A little over a year ago, a headline on Seeking Alpha announced, "VYM Increases Its Dividend 20%: ETF Portfolio Increases Its Lead Over The Stock Pickers." VYM is a dividend ETF from Vanguard. When I read the headline, I was perplexed. In my own Dividend Growth Portfolio [DGP], I have never experienced a dividend jump of anywhere near 20% all at once across the portfolio. An individual stock may do that, but not an entire portfolio. I wondered how the ETF had managed to have a sudden 20% increase in its distribution across the whole fund.

A little investigation revealed the answer: Vanguard's VYM has a seasonal pattern to its distributions. They cut their payout in the first quarter of each year, then they raise it over the next three quarters, with the largest increase typically coming in December. Then they cut the next payout the following March and start the cycle over again. The headline and article focused only on the fourth quarter increase, never discussing the seasonal pattern. There was no follow-up article discussing the 25% cut three months later.

Source: Seeking Alpha

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