Registered: Jul 2012
Posts: 3

Suppose one component stock of an ETF gives out dividends at the end of day T. How does the ETF handle it? Does it add this dividend to its cash component before the beginning of day T? before the beginning of day T+1? Does it use the dividend to re-invest all the components of the ETF? Or are there any other situations I am not aware of here?

Registered: Jan 2009
Posts: 1947

If a stock that an ETF holds pays a dividend then the ETF deals with the tax implications and income but that's the extent of it.

Think about it this way. An ETF tracks an index. All the ETF does is invest in such a way that your share of the ETF tracks exactly (or as close as possible) to the index. All the ETF does is look at the % weightings of each stock in the underlying index and adjust accordingly. Since indexes don't hold cash the dividend payment is just re-applied back to making sure that the ETF's stock basket is proportionately allocated to the index weightings.

Advantage Futures

Futures Brokerage & Clearing

AMP Global Clearing

Futures and FX Trading

Bright Trading

Professional Equities Trading

CTS

Futures Trading Software

DaytradingBias.com

Professional Trading Analytics

ECHOtrade

Professional Trading Firm

eSignal

Trading Software Provider

FXCM

Forex Trading Services

Global Futures

Futures, Options & FX Trading

Interactive Brokers

Pro Gateway to World Markets

JC Trading Group

Direct Access Trading

MB Trading

Direct Access Trading

MultiCharts

Trading Software Provider

NinjaTrader

Trading Software Provider

OANDA

Currency Trading

optionshouse

Option Trading & Education

Rithmic

Futures Trade Execution Platform

SpeedTrader

Direct Access Trading

SpreadProfessor

Spread Trading Instruction

thinkorswim by TD Ameritrade

Direct Access Trading

TradersStudio

System Building & Backtesting

Trading Technologies

Trading Software Provider

Trend Following

Trading Systems Provider