Tuesday, March 29, 2011

What's the yield? 2.6% or 9.2%? Who's right?

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This info was added Dec. 28, 2011. As of today it appears that DRW will miss paying its fourth quarter dividend. Ouch! The overall dividend yield for the year was more than 10 percent but still I was expecting about $400 come the end of December.


What happened? I found this explanation on the Net:


"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "


I'm holding my position. I'm not overexposed and feel little concern. We'll wait to see what the yield is delivered at the end of the first quarter of 2012 and we'll hope the value of this ETF doesn't continue to lose ground. This missed dividend payment does add a whole new wrinkle to owning DRW.
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Recently, I wrote that I owned DRW, WisdomTree International Real Estate Fund. I said that I was quite content with it as an investment even though it proved to be outrageously volatile during the recent crash of global markets. I think I lost over 60 percent of the value of my investment. (I bought more!) What eased the pain was the dividend, I wrote.

The dividend? The dividend didn't seem all that good to one reader who stumbled upon my blog. They did some research and told me the dividend "sucked."

Click to enlarge.
I'm not surprised that they were not impressed with the numbers. According to the Globe and Mail, DRW has a yield of 2.6 percent. A painfully low yield for an investment that could easily drop by a third in another serious downturn. A 2.6 percent yield hardly covers inflation.

How did the Globe calculate the annual yield? My guess is that they took the March 2011 dividend, 18.2 cents, and treated it as if it was reflective of every dividend payment to be made in the coming year.

This approach works for lots of companies. The Canadian big banks readily come to mind. For instance, the Royal Bank pays a dividend of 50 cents four times a year.

This approach does not work for DRW. The dividend for this ETF changes with every payment and historically it is much, much higher at the end of the year. The December dividend can be more than the other three dividends added together!

Last year DRW paid:

  • March: 16.4 cents
  • June: 51.5 cents
  • September: 21.4 cents
  • December: $1.768

And the December dividend was not unexpected. A year earlier the year end dividend was $1.687 and the year before that it was $1.954.

I fully expect to see a yield on my investment, a yield on my trust in DRW, of about 9.2 percent, more or less.


2 comments:

  1. 2012-05-23: A couple of very interesting comments posted previously. First, the expectation is for a large dividend in Dec 2011 (as per previous years), but zero dividend. Second, after this zero dividend, is the expectation that DRW will issue a dividend in 2012Q1, but again no dividend! Anyone have predictions for a DRW dividend in 2012Q2?

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  2. 2012-05-23: I saw this comment posted above re why no DRW dividend for 2011Q4. "...PFICs ... mark to market...". What's the reason for no dividend in 2012Q1?

    ReplyDelete