absolutezero wrote:Arborbridge wrote:
Yes, but they are also the reward for your risking capital. It's up to you whether you re-invest and call it "capital" or spend it and call it "income".
Or did you perhaps, mean that in this case HFEL appears to be paying us out of our own capital - i.e. the value of our capital is reducing to fund the dividend?
Arb.
All dividends are paid out of your own capital. They are in the share price, which is why it falls on XD day (plus or minus market noise on the day).
Selling 5% of your holding is the same as having 5% of it paid to you as a dividend (assuming held in a tax shelter).
With HFEL you have the double whammy of a falling share price due to market movement AND a falling share price on every XD day.
Dividend investing is a fallacy.
Might as well just sell x% of your shares as you need them rather than chasing yield.
Don't entirely agree with the 'fallacy' bit. Yes, dividends are paid out of capital reserves which in itself is nothing more than accumulated net profit. However, I see dividends as a policy of a bird in the hand. Value can evaporate and in some cases, rather quickly. The dividend can be utilised as a source of income or part of a cash fund for further strategic reinvestment which could be anywhere or anything, not necessarily the same fund, thereby offering flexibility, or of course, a bit of both. For me, the ideal scenario for an income fund is @ a 50/50 split on total return, 50% cash distribution and 50% capital growth. Best of both worlds.
PS - As a general footnote, let's not forget the use of derivatives/options etc as part of a fund manager's toolkit where market volatility can 'pay dividends'
. Often overlooked.