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Bond ETFs usually make monthly dividend payments. The ETF manager receives quarterly or semiannual coupons on the underlying bonds in the ETF. What is the time delay between the coupons received and the monthly dividends?

I.e. Are coupons received in quarter x, and then distributed over 3 months in quarter x + 1 (or for semiannual bonds H1 and then distributed over 6 months in H2)? What about situations where coupons from different bonds are received at various points in the quarter, what happens then...are they paid out in the same month?

Would be extra grateful if you could cite the source for your information. Been looking for a resource or PDF that explains this stuff.

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From BlackRock:

As a ’40 Act fund, a bond ETF is required to distribute all interest and capital gains to investors on at least an annual basis. Most bond ETFs distribute interest on a monthly basis, which can provide a smoother income stream than the semi-annual coupon payments an individual bond typically provides (see hypothetical illustration below).

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  • $\begingroup$ I already came across this in my research. What's not clear is if those payments are always just the payments from the previous half of the year or if the delay is greater. I.e. do they pay out everything they get as soon as the next monthly dividend date comes round? $\endgroup$ – trade_the_basis Sep 13 '17 at 11:35
  • $\begingroup$ If the fund has a bond with semi-annual coupons then as soon as they get the coupon payment they will start the distribution over the next 6 months period. I think you can contact Investment and/or Distributor (agencies like SSGA) to obtain an official reply regarding the matter. $\endgroup$ – AK88 Sep 19 '17 at 3:56

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