Dividendology
Why was the recent dividend hike from $SCHD so much lower than expected?
SCHD experienced a substantial increase in inflows over the past few months. When new money enters after the fund has already received many of the dividends from its underlying holdings, more ETF shares may be outstanding when that accumulated income is distributed.
In simple terms, the fund’s dividend income is being divided across a larger number of SCHD shares. That can temporarily suppress the distribution per share even if the underlying companies are still producing healthy dividend growth.
This is also why investors should be careful about judging SCHD’s dividend growth from a single quarterly payment. ETF distributions can be affected by the timing of corporate dividends, portfolio rebalancing, fund flows and the number of shares outstanding.
It’s also worth noting that we have seen this before.
Through the first three quarters of 2016, SCHD’s cumulative dividends were actually lower than during the same period in 2015. However, a strong fourth-quarter distribution ultimately pushed SCHD’s full-year dividend growth to approximately 9.7%.
That does not guarantee another large fourth-quarter payment this year. It does show why quarterly dividend growth can give investors an incomplete picture.
The upcoming Q4 distribution will be far more important. Until then, SCHD’s 0.3% increase should be viewed in the context of unusually strong inflows and distribution timing, not automatically as evidence that the dividend growth of its underlying portfolio has collapsed.
15
