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Question about dividends
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<blockquote data-quote="awbuzz" data-source="post: 1001442" data-attributes="member: 443"><p>Your benefit is you own more shares or your received cash. That's a win. (exception is if rate skyrocketed and you were force to sell your shares when the bond price is dropping as explained below).</p><p></p><p>One issue you have is that ETFs and Bond Funds, buy and sell so they may not (most likely not) holding until maturity for each bond they hold.</p><p></p><p>Bonds are bought at a price, then interest (dividend) is paid on a scheduled basis. If held to maturity you'd get the interest over time plus your original money back. If sold before maturity the price you get for the bond is subject to the current interest rate market. If rates are up, you'll get less for your bond, and vice versa. </p><p></p><p>This link might help - <a href="https://www.etf.com/etf-education-center/etf-basics/how-do-bond-etfs-work" target="_blank">https://www.etf.com/etf-education-center/etf-basics/how-do-bond-etfs-work</a></p><p></p><p>Below (from dtf.com) explains why a bonds price would decrease in a environment of rising interest rates.</p><ul> <li data-xf-list-type="ul">A hypothetical $100 bond has a 5 percent coupon—meaning, every year, the bond will pay out $5 to investors until it matures. Then interest rates rise 2 percent. The bond issuer decides to issue a new bond that's identical to the first, except that it now carries a 7 percent coupon.</li> <li data-xf-list-type="ul">Given the choice between the 5 percent bond and the 7 percent one, who would choose to own the one that pays less money? Nobody, if the price remained the same $100. It doesn't, of course. The bond's price drops to make it comparable to the yield of the 7 percent bond. So if you own the 5 percent bond, you'll still receive your $5 every year, but the bond's market price—or the price you'd get if you sold the bond today—would decrease.</li> </ul></blockquote><p></p>
[QUOTE="awbuzz, post: 1001442, member: 443"] Your benefit is you own more shares or your received cash. That's a win. (exception is if rate skyrocketed and you were force to sell your shares when the bond price is dropping as explained below). One issue you have is that ETFs and Bond Funds, buy and sell so they may not (most likely not) holding until maturity for each bond they hold. Bonds are bought at a price, then interest (dividend) is paid on a scheduled basis. If held to maturity you'd get the interest over time plus your original money back. If sold before maturity the price you get for the bond is subject to the current interest rate market. If rates are up, you'll get less for your bond, and vice versa. This link might help - [URL]https://www.etf.com/etf-education-center/etf-basics/how-do-bond-etfs-work[/URL] Below (from dtf.com) explains why a bonds price would decrease in a environment of rising interest rates. [LIST] [*]A hypothetical $100 bond has a 5 percent coupon—meaning, every year, the bond will pay out $5 to investors until it matures. Then interest rates rise 2 percent. The bond issuer decides to issue a new bond that's identical to the first, except that it now carries a 7 percent coupon. [*]Given the choice between the 5 percent bond and the 7 percent one, who would choose to own the one that pays less money? Nobody, if the price remained the same $100. It doesn't, of course. The bond's price drops to make it comparable to the yield of the 7 percent bond. So if you own the 5 percent bond, you'll still receive your $5 every year, but the bond's market price—or the price you'd get if you sold the bond today—would decrease. [/LIST] [/QUOTE]
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