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December 23, 2004

ETF Dividends

Both of the ETF's currently owned by Northlake clients, the S&P 400 Midcap (MDY) and the Russell 2000 Value (IWN), went ex-dividend in the last week. This has a temporary negative impact on your portfolio values that will reverse in January when the payments are received....

Specifically, MDY went ex-dividend on 12/17 for $0.30589 and IWN went ex-dividend on 12/23 for $0.985035. The MDY dividend is payable on 1/31/05, while the IWN dividend is payable on 1/6/05. When a stock goes ex-dividend, the value of the dividend is subtracted from the stock price. This has the effect of lowering the value of your account temporarily. For example, IWN closed yesterday at 193.58 but that price was adjusted downward today by 98 cents. Consequently, despite the fact that IWN is up about 50 cents today, it apears as though you have less value in your account in IWN today than you did at the close yesterday. Of course, come January 6th, the cash dividend payment will hit your account and the value of your account gets a boost.

Normally ex-dividend dates don't create much noice. However, because Northlake uses a concentrated approach to ETF's the flucuations in market value on ex-dividend dates and payments dates can actually impact portfolio values in a noticable way.

Also worth noting is that the current yield on MDY is 0.88% and the current yield on IWN is 1.38%. These yields are not particularly exciting but are meaningful in a low interest rate environment. More interesting is that the dividend growth for MDY and IWN in 2004 versus 2003 was unusually high at 23% and 33%, respectively. The change in taxation on dividends and several years of strong earnings and cash flow growth are the leading reasons for the high growth rate in dividends.

Please call (847-226-9713) or email (steve@northlakecapital.com) if you have any questions or comments, or just post your thoughts below by clicking on the "Comments" link.

Posted by Steve Birenberg at December 23, 2004 01:50 PM in Models