On June 26, 2023, the China Securities Dividend ETF (ticker: 515080) announced its second dividend distribution plan for the year 2024. This marks the fund's ninth dividend issuance since its inception on November 28, 2019. It is noteworthy that the China Securities Dividend ETF has been the only A-shares ETF to consistently issue semi-annual dividends over the past three years, specifically from 2021 to 2023. This recent announcement indicates a transition towards a quarterly dividend distribution model.

The notion of dividends, or “yielding returns,” has emerged as a trending topic for 2024. For loyal readers of EarlETF, the term "yielding returns tribe" should sound familiarThis approach to dividend collection requires a certain level of expertise, so I've compiled a “yielding returns guide” that could be of interest and useful to many investors.

The gradual evolution of ETFs and their dividend policies was not something that occurred overnight

Advertisements

There was a time when ETFs in the A-shares market either did not pay dividends or did so infrequentlyIn the context of the burgeoning increase in dividend payments, the China Securities Dividend ETF stands out as a pioneer in this domain.

Upon analyzing data from Wind, among all ETFs that maintained regular annual dividends between 2021 and 2023, only nine have sustained such a patternRemarkably, the China Securities Dividend ETF has been the sole fund that has consistently opted to distribute dividends twice each year since 2021, thereby setting a trend for others to followEntering 2024, the fund announced its initial dividend payout on March 22, 2024, with a distribution rate of 1%. At that time, I speculated that this ETF was gearing up to transition into a quarterly dividend structure.

According to the latest announcements, the China Securities Dividend ETF will be distributing dividends on June 14, 2024, at a rate of 0.02 yuan per share—equating to a distribution ratio of 1.29%. Combined with the payout in March, the total dividend for the year so far stands at 0.035 yuan per share.

Diving deeper into the mechanics of ETF dividends, there are five critical dates investors must be aware of if they are keen on joining the “yielding returns tribe.” Taking the dividend data for the China Securities Dividend ETF as a reference point, these crucial dates are:

1. The record date: This is when the fund company calculates relevant data and determines specifics such as the dividend ratio based on the share price and net asset value on that day.
2. The announcement date: This is when the fund company declares its dividend distribution plan, giving ETF holders insight into upcoming distributions

   Advertisements

   Securities market notifications typically become available on trading platforms the evening prior to the official announcement, allowing astute investors a slight head start.

3. The ex-dividend date: This is significant for ETF holders who wish to receive dividends, as only those registered by this date will qualify for the distribution.
4. The ex-dividend price adjustment date: On this day, ETF prices are adjusted downwards to account for the dividend distribution, so a lower market price compared to the previous day may simply indicate the ex-dividend adjustment rather than a loss in value.
5. The payment date: This is when the dividends are actually transferred to the holders’ accounts, occurring a few days after the ex-dividend date.

As we venture further into 2024, the thrill surrounding dividend investments has paved the way for a new trend: high-frequency dividend distributions

Advertisements

In fact, monthly dividends have now become a common occurrence, signaling a substantial development in the investment landscape.

The question of how frequently dividends should be distributed remains intriguingThere is no universally correct answer; the ideal frequency often varies based on an individual's investment strategies and personal preferencesNevertheless, one has to consider the potential downsides of excessively frequent dividend payoutsWhile such distribution would lead to higher cash inflows, it could also create a psychological burden for investors who need to actively manage this cash flow.

For instance, if you belong to the “yielding returns tribe” and intend to use dividends to fund living expenses, monthly payouts would necessitate monthly transactions from your securities account to your bank account—a process that some may find tedious, despite the appeal of receiving money each month.

Conversely, those optimistic about the A-shares market's long-term performance and planning to reinvest their dividends back into ETFs will find varying frequencies of payout significantly impacting their cumulative gains.

Consider a fund with a net value of 1 yuan and an anticipated annual dividend yield of 4.8%. If distributed quarterly, the amount received per quarter would be 0.012 yuan per share

• Inflation in the Eurozone
• Inflation in Europe Will Rise Next Year
• The Importance of Gold Reserves
• Boosting Enterprise Innovation for New Productive Forces
• The Fed's Rate Cut Faces Uncertainty

Keep in mind that the smallest tradable unit of an ETF is 100 shares, which means, to fully reinvest the dividends, one would need to hold at least 8,400 shares—an investment of around 8,400 yuan.

Should the same fund choose a monthly payout, the distribution would be 0.004 yuan per share each month, necessitating a holding of at least 25,000 shares, translating to an investment of roughly 25,000 yuan.

It’s essential to note that these calculations represent minimum holding amounts, suggesting that it might be wise to consider increasing positions in increments of these amounts during subsequent investments.

Ultimately, the appropriate frequency of dividend distributions should align with one’s financial circumstances and investment style—rising frequency does not automatically equate to a better outcome.

Moreover, it’s worth noting that managing reinvestment costs is crucial

Investors should seek brokers offering low commission rates for ETFsIdeally, commissions should be minimal (often around one-thousandth of a percent), and investors should avoid brokers with high base commission fees—unless one wants to incur disproportionately elevated transaction costs.

For those who prefer the convenience of generating passive income without dealing with the intricacies of reinvestment, utilizing ETF feeder funds might mitigate some of these concernsRecently, the feeder fund for the China Securities Dividend ETF has also begun distributing dividends and has maintained its pattern of quarterly dividends paralleling the main ETF performanceHowever, for those who have a positive outlook on the future performance of the A-shares market and prioritize dividend ratios, direct investment in ETFs may be the superior choice.

When weighing the decision between traditional ETFs and their feeder funds, a common dilemma investors face is whether to stick with an ETF requiring a stock account or to explore mutual funds accessible via third-party platforms

From the perspective of maximizing capital efficiency, ETFs have emerged as the preferred vehicle across global markets.

The operational differences between on-exchange and off-exchange funds are significantETFs operate under a physical mechanism of stock subscription and redemption, allowing fund managers to maintain a high equity ratio—often over 99.5%—while requiring minimal cash reserves to redeem shares.

In contrast, off-exchange funds, like ETF feeder funds, typically utilize a cash-based redemption strategy, compelling managers to maintain a cash position around 5%. This inherently leads to a reduced allocation in ETFs, typically hovering around 95%. This reduction represents an opportunity cost for investors relying on consistent income from dividendsFor example, if the dividend yield of the China Securities Dividend ETF is around 5.8%, investing directly allows for nearly the complete realization of this yield.

However, when using a feeder fund held at a 95% allocation, the remaining 5% invested in fixed-income securities with a 3% yield dilutes the overall dividend yield to approximately 5.66%. Such dilution is not just limited to yield; if the underlying ETF appreciates by 10%, the feeder fund’s returns will only correlate to 95% of that raise due to the suboptimal cash position maintained for liquidity requirements.

This analysis underscores why ETFs, particularly in dividend-focused investments, provide greater capital efficiency and present a compelling case for investors looking to capitalize on both dividend income and capital appreciation.

In discussions surrounding “yielding returns,” two main strategies often emerge: 1) the consumption stream—directly using dividends for personal expenses, and 2) the reinvestment stream—where dividends are utilized to purchase additional shares of the ETF

Outside of these two established approaches, a third strategy worth considering involves treating dividends as a form of “risk investment.”

The nature of dividend-bearing assets, such as the China Securities Dividend ETF, lends itself to being a reliable core holding for many investors due to its comparatively stable performanceHowever, there lie enticing opportunities outside of high dividend returns in the A-shares market that should not be overlooked.

Many investors are currently buzzing about the prospects of select stocks, such as liquor brands or the potential within various technology segments, further enhancing the excitement surrounding the A-share market.

Thus, while managing dividends from the China Securities Dividend ETF, one can adopt a “risk-taking” approach whereby they invest distributed dividends into undervalued or potentially explosive assets

This strategy functions as a periodic investment model based on the quarterly dividends receivedSuch an approach not only enhances overall returns during bull market phases but also allows investors to continue their investment strategy without significant downside risk, even while holding shares in sectors that may be temporarily underperforming.

Finally, while the focus of dividend assets is primarily on receiving dividends from high-yield stocks, there are also opportunities to generate returns through tactical trading or taking advantage of market fluctuationsFor those familiar with the movements of the China Securities Dividend ETF, it is common to observe price increases of about 8-12% followed by corrections, contrasting sharply with the relentless upward movements often seen in growth stocks.

This range aligns closely with the expected dividend payouts over spans of 1.5 to 2 years