Paying out Dividends

Hi. I had my investments at Franklin Templeton with an advisor. I was receiving dividends monthly. Which was awesome. I have closed this & moved over to Vanguard. I am currently in the Target Date Index Fund 2050. I see it only pays out once a year annually. How does this work? Because it only pays out once a year, do I make less in dividends? How do they know how much I had in the acct each month then? I guess I am worried that I am making less in dividends only being paid out yearly vs monthly. Do you have an index fund suggestions that pay out monthly?
Thank you!

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According to this scorecard, in 2020 a share of VFIFX paid out an annual dividend of $0.74. It’s true that your target date fund pays out dividends annually. Seeking monthly, or quarterly dividends would require you to change your portfolio.

You can consider a 3-fund portfolio. BND(vanguard’s bond index fund) would pay you out monthly dividends, while VTSAX and VTISAX would both pay you dividends quarterly. Keep in mind, if you choose to go this route you will have to manage the asset allocation of your portfolio yourself. In a target date fund you don’t have to worry about micro managing your portfolio. A trained professional will do that for you automatically.

If you are seeking to collect monthly dividends in your Roth IRA, you might want to look into individual dividend stocks. Some that come to mind are O, STAG, and SPHD(index fund of low volatile dividend stocks). Personally speaking, I would stay the course and stick with my target date fund. Best of luck!

Hi Jason. Thank you for taking the time to respond. I really do appreciate it. I know what you have said & understand. I appreciate the response. My main issue is wanting more understanding how Annual dividends payout compared to monthly. Does it equal the same or do you get back less dividends than if you are getting monthly dividends? I have tried to google this & not having any luck on finding the answer.

Your target date fund is an index of many companies. Most of which that payout a dividend. I don’t understand the nuances of how they calculate the dividend payout per share, but if I had to guess it is based on the previous year’s performance. You don’t get less or more dividends. The amount of the dividend is either predetermined, or announced throughout the year based on the performance of the fund, or stock.

If you consider the math, monthly dividends would perform slightly better due to compound interest versus quarterly/annually. I hope this reference helps.

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I’ll cover this in tonight’s office hours (3/17/2021) with the recording available afterwards on the course site!

If you’re not signed up for office hours, you can sign up here.