In this episode of “What’s the Risk?” we take a look at the historic performance of the FTSE Australia High Dividend Yield Index. Some people would know an ETF that seeks to track the performance of this index as Vanguard’s VHY ETF.
Dividends and high yield stocks have always been a draw for some investors who may think they are getting something for free with dividends, but it’s important to remember dividends are not free money, that cash comes from somewhere Share prices are influenced by expected future cash flows to shareholders. If cash goes out the door as a dividend, share price and market cap generally fall ex dividend.
Dividends are also not as tax efficient as selling something post a CGT discount, however in Australia most of our largest companies are all large dividends payers, so it’s interesting to take a look at a yield focused index vs a broader index such as the ASX 300, to see whether simply focusing on those companies has provided a better return?
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