RetireJapan

I'm trying to get a better understanding of how dividends, and especially reinvestments of dividends work.

For example, looking at the fund ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（オール・カントリー） on Rakuten, it mentions 【決算日】4月25日. Is my understanding correct that is the date when the dividends are computed and (soon thereafter) paid?

Looking at this Morningstar page, it seems no dividends were paid this year on 2019/04/25. Why is that? Does the fund reinvest the dividends internally and therefore doesn't pay out dividends?

For people, who configured their accounts to reinvest dividends (再投資), is there a way on SBI or Rakuten to look up how much dividends were reinvested?

Thanks in advance for providing any clarifications!

Very good questions that I don't have the answers to. I believe some funds reinvest dividends by default, so it doesn't make any difference whether you choose 'pay out dividends' or 'reinvest dividends' when you buy them.

I have both versions of the eMaxis All-country fund and have yet to receive a dividend

Anyone else?

Yokohama wrote: ↑Sat Sep 07, 2019 12:37 am I'm trying to get a better understanding of how dividends, and especially reinvestments of dividends work.

I've wondered the very same thing...
All the investing books and guides talk about how much our investments can grow due to 'compounding interest'. But we don't get paid interest on mutual funds (like the eMaxis Slim funds), do we? After all, we're buying a stake in those companies not loaning them money... So, does that mean our 'compounding interest' comes from the reinvestment of our dividends buying us more of the funds individually? And that relies on it being a 'good' year where the fund actually does pay out a dividend, yes?
Do we get any capital gains payouts with eMaxis Slim funds? I don't think so because they're not actively managed...
If there are no dividends or capital gains, the only way we can make money from these eMaxis Slim funds is to sell if the fund share price increases after purchase... Is that right?

All the investing books and guides talk about how much our investments can grow due to 'compounding interest'. But we don't get paid interest on mutual funds (like the eMaxis Slim funds), do we? After all, we're buying a stake in those companies not loaning them money... So, does that mean our 'compounding interest' comes from the reinvestment of our dividends buying us more of the funds individually?

Right, when we talk about compounding and stocks (or funds), compounding can be an effect of reinvesting dividends buying more and more stocks (or funds). Another factor can also be the growth of the company itself, reflected in the price of the stocks. I think they are even opposite sides of the same coin. The first answer on this page explains it quite well.

Do we get any capital gains payouts with eMaxis Slim funds?

Capital gains are simply the profit from the sale of an investment, that is, when you sell an investment that increased in value yourself.

Therefore,

we can make money from these eMaxis Slim funds is to sell if the fund share price increases after purchase

That is a capital gain.

Now the ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（オール・カントリー）fund tracks the MSCI all country world index (ACWI). Since that index contains stocks of close to 2900 companies (see this PDF), it would be very very unlikely that none of those companies pay out any dividend during the year. The same PDF also lists a dividend yield of 2.56%. Therefore, it seems that the companies in the ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（オール・カントリー）fund are paying out a dividend of about 2.56%, but the eMaxis index itself does not seem to pay out those dividends to the investor directly. Therefore, the only other thing I can think of is that the fund is reinvesting the dividends internally.

Thanks Yokohama! Great post!

Yokohama wrote: ↑Mon Sep 09, 2019 10:53 am Capital gains are simply the profit from the sale of an investment, that is, when you sell an investment that increased in value yourself.

Huh... From this site, it suggested capitals gains were different... I thought capital gains would be if the fund manager made a sale within the fund, those profits would be passed on to the investors... The fact that the eMaxis Slim funds are not actively managed, we wouldn't get any capital gains... That was what I had thought...

the only other thing I can think of is that the fund is reinvesting the dividends internally.

How do we all benefit from this method?

Thanks again for the input!

I did some more digging, and this blogpost (in Japanese) also mentioned that many big index funds don't pay out dividends, but reinvest dividends internally (including an eMaxis Slim fund). The article gives an example for the Nissei Nikkei 225 Index Fund from its prospectus. By buying additional stocks with the dividends within the fund, it raises the base price of the fund thus increasing the value of the fund.

Some stated benefits of this approach in the article:

1. By not paying out dividends, the fund can keep the fund fees lower
2. The dividends paid out to investors are taxed (unless you use e.g. a NISA account). So even if you reinvest the dividends yourself, the compounding as a result of the reinvested dividends is smaller, compared to reinvesting the dividends with the tax exemption as is done by the fund itself.

Yokohama wrote: ↑Mon Sep 09, 2019 10:53 am Now the ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（オール・カントリー）fund tracks the MSCI all country world index (ACWI). Since that index contains stocks of close to 2900 companies (see this PDF), it would be very very unlikely that none of those companies pay out any dividend during the year. The same PDF also lists a dividend yield of 2.56%. Therefore, it seems that the companies in the ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（オール・カントリー）fund are paying out a dividend of about 2.56%, but the eMaxis index itself does not seem to pay out those dividends to the investor directly. Therefore, the only other thing I can think of is that the fund is reinvesting the dividends internally.

According to the prospectus the fund tracks a total return index ＭＳＣＩ オール・カントリー・ワールド・インデックス（配当込み、円換算ベース）, rather than a price index. This means that the dividends would be reinvested as a matter of course to keep up with the index (which includes dividends). The fund could theoretically pay out a dividend, but only if it out-performed the index (which is pretty unlikely).

That explains a lot, thanks fools_gold!

Yokohama wrote: ↑Mon Sep 09, 2019 12:56 pm many big index funds don't pay out dividends, but reinvest dividends internally (including an eMaxis Slim fund). By buying additional stocks with the dividends within the fund, it raises the base price of the fund thus increasing the value of the fund.

Right... So that's how our investments will show the same effect as compounding interest, yes?
On the last distribution date for the eMaxis Slim funds this year (25/4) the price plummeted -was that just bad luck as the market dropped right on that day? There's no evidence of the base price changing in a positive manner around that time...

fools_gold wrote: ↑Mon Sep 09, 2019 6:32 pm According to the prospectus the fund tracks a total return index ＭＳＣＩ オール・カントリー・ワールド・インデックス（配当込み、円換算ベース）, rather than a price index. This means that the dividends would be reinvested as a matter of course to keep up with the index (which includes dividends).

Would/Should this still create a 'bump-up' in the base price on the distribution date?

Bushiman wrote: ↑Fri Sep 13, 2019 12:11 am Would/Should this still create a 'bump-up' in the base price on the distribution date?

No. The increases should correspond to dividend distributions from the stocks/assets included in the fund, and those are spread out throughout the year. The distribution date of the fund itself (where it distributes 0 yen) need not have any particular impact.