Personal Finance & Money Asked on March 27, 2021
I’m trying to find out if some indexes are calculated including dividends (specifically, S&P 500, FTSE 100, DAX 30 and IBEX 35).
I have read here that S&P 500 does include dividends. That would explain why it grows so much, compared to other indexes that don’t include them.
On the other hand, for the case of FTSE 100, in this article I can read that it does include dividend yields:
The total return for the FTSE 100 includes the price return of index and also any dividends that companies listed on the FTSE 100 have paid out to investors over the period.
However, here I can read that it does not include dividend yields:
The FTSE 100 is back below the level it was in 1999. However, investors could still have achieved a positive return over the last 19 years had they opted to reinvest their dividends, Schroders’ calculations show.
PD.: I always use Google Finance to display a market index value, so when I say ‘the index value’ I mean the actual value of the index reported by the above tool.
First, lets separate two things - the index itself (which is just a number calculated from stock prices) and funds that track the index.
You are right that an index can optionally be adjusted for the dividends that the underlying stocks pay. The S&P 500 index does that, while the FTSE 100 does not.
You can find funds that track both, however, that either pay or reinvest dividends. The key terms to look for are price return and total return. In the UK these are called income funds and accumulating funds. Total return is the growth that you get if you reinvest dividends on a stock (or many stocks in the case of a fund). If an ETF tracks the price return, then it pays out dividends rather than reinvesting them (you can obviously reinvest them yourself if you choose). If a fund tracks total return, then it does NOT pay out dividends, but reinvests them (presumably in the right proportion to continue tracking the index).
Finally, remember that dividends have zero effect from a wealth standpoint. The value of a stock (and hence of an index that contains the stock) goes down when a dividend is paid, since wealth is not created, only transferred from the company to the shareholder. So a stock that does not pay dividends is not "better" that one that does even though its price appears to go down at that time. Same for ETFs - one that accumulated dividends is not better than one that pays them, even though if you just look at the price history, it does not show the effect of paying a dividend. Most providers will show you both a price history and a total return history for funds that pay dividends to show you the actual wealth if you reinvest dividends It's sometimes labelled as "growth of $10,000" or some other arbitrary amount.
So, if you're looking for funds on DAX 30 and IBEX 35 and wonder if they pay dividends or not, look at the prospectus. They will tell you if dividends are paid or reinvested (accumulated). But if you just reinvest the dividends yourself in the same thing, it doesn't matter which you choose (for the reasons above).
Correct answer by D Stanley on March 27, 2021
Get help from others!
Recent Questions
Recent Answers
© 2024 TransWikia.com. All rights reserved. Sites we Love: PCI Database, UKBizDB, Menu Kuliner, Sharing RPP