Generally, when it comes to receiving dividends from a position with an ETF, you should consider its type, as it is likely that a dividend might get reinvested automatically in the respective ETF.
What is an accumulating ETF?
When a dividend is distributed, an accumulating ETF will re-invest the dividend amount into the net value of the ETF itself, increasing its worth. As a result of the total value of the fund going up, you will be able to benefit from compounding return exponentially over time. 📈
Example: An ETF has a net value of 500,000 USD. A company within said ETF distributes a 5 USD dividend. The company has 600 outstanding shares, thus the dividend for all shares amounts to 3,000 USD. Since this is an accumulating ETF, that amount is reinvested, and the net value of the ETF goes up to 503,000 USD.
What is a distributing ETF?
A distributing ETF, on the other hand, is one that pays out all dividends directly to the shareholder to reinvest manually or use at their own discretion.
Depending on the tax policies of your country of residence, either type of dividend may be taxable. For more information, it is best to check with your local tax authorities. 📝