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Is TR of an OEF directly proportional to the amount of distribution paid by the fund?
@dpf749: "PRCWX traditionally lags its peers further and further as the year goes on, then distributes a massive dividend and CG payout in December, putting it squarely back in the pre-tax Total Return lead."
@BaluBalu: "@dpf749, I do not think it works that way but I shall let others debate your point."
It seems as if that only works if the income for the special distribution was not accounted for in the TR prior to their distribution. I can't think of how that could happen over the course of a full year? If it were being accumulated, wouldn't the NAV have risen along the way?
This kind of gets back to the idea that distributions are 'free money' that have nothing to do with the price assigned to the individual shares. Invariably, anything you take out through distributions or selling reduces the value of what remains invested. Unless your TR is positive, this requires an ever-increasing percentage return to support a fixed distribution from a decreasingly-valued investment.
Corporations/businesses are simply not going to give you something for nothing. The idea that investments with a high distribution are somehow inherently more advantageous than ones which simply generate profits and increase price is, imo, a naive one. Of course, you can get price dislocations and there are certainly advantages to having a way to get predictable income from an investment at times when the investment is struggling. These are issues of convenience, however. and not of financial advantage.
Flowing distributions through NAV can be a confusing process. Account values may keep rising despite the reductions in NAV in the ex-dividend days. This is best seen for ultra-ST bond funds whose NAVs don't fluctuate much. So, the actual prices (_TICKER) remain range bound, sort of back-and-fill, but the account values (adjusted prices, TICKER) keep rising.
Distributions by funds are so that the IRS can get its annual cut, and they don't have much to do with the TRs.
BTW, variable-annuities don't make any distributions and their TRs are fine (i.e. NOT zero).
PRCWX traditionally lags its peers further and further as the year goes on, then distributes a massive dividend and CG payout in December, putting it squarely back in the pre-tax Total Return lead.
This statement says that the dividend adds to total return - the "massive dividend" helps a fund that is lagging to catch up (and surpass) in Total Return. In 2023 the price of PRWCX declined on Dec 19th (ex-div date) commensurate with the size of its dividend, thus netting zero increase in Total Return. That is, not putting it squarely back in the Total Return lead.
The equalization of NAV to distribution only holds effect on the ex dividend date and NAV should revert to mean reasonably quickly.
This statement acknowledges this effect but says that it was temporary. Over time (two months was mentioned) the fund would recover this loss. At that point the dividend would have presumably added to the Total Return, putting the fund squarely back in the lead.
It's the underlined section that is problematic.
-------
Consider two funds that pay out over a year roughly equal dividends (percentage wise). One pays quarterly, one annually. As I understand the statements above, the one paying quarterly will pull ahead in total return during the year - it will pay out its quarterly dividend, see its price drop but recover sometime within that quarter. So its total return will for those first three quarters gradually exceed that of the other fund.
But come December, the second fund will make a larger distribution (full year's worth rather than a quarter) and that will let it catch up (perhaps surpass) in total return. That catch up will be complete in a couple of months once the price has "reverted to the mean". At least that seems to be the claim.
For simplicity and clarity, let's consider two purely hypothetical funds, each holding the same one stock. Fund A distributes quarterly, Fund B annually. Suppose the underlying stock pays a div on March 31 (record date much earlier, but irrelevant), and Fund A distributes divs on the same day.
To compute total return, one assumes all fund divs are reinvested. With that assumption, the pre- and post-distribution portfolios of Fund A are the same, and are also the same as the Fund B portfolio (which made no quarterly distribution). Going forward, both funds will have the same total return because they have identical portfolios.
Fund B does not lag just because it doesn't make quarterly distributions. It does not catch up with a "massive dividend" at year end. A dividend payment has no effect on total return.
Even if one buys into this theory, funds don't work that way. In part because fund distributions include capital gains which are not part of this stock div theory. In part because there are so many moving parts in funds that one can't tell from the yield what's going on. A fund could be invested in a mix of money losing companies (with no divs) and companies with high div payout ratios (distributing cash since they are stagnant), or strong companies with respectable payout ratios. The fund yields could be similar either way.
Yes, price, by itself, doesn't tell you the value of an investment if distributions are being reinvested (not to mention if the distributions are spent). Nor do distributions, by themselves, indicate the value of an investment. Only the total return added to the invested amount tell you anything about the value of your investment. The combination of price, number of shares, and the total return of the invested amount must all be considered in combination; not dealt with independently.
...the dividend would have presumably added to the Total Return
Two identical investments will net out equal total returns over a full year cycle, no matter when the distributions are made. That is tautology. There is no point to your comparison, unless factoring in market timing or tax liability considerations. Dividends are a component of total return, as are share price appreciation and distributed capital gains. That is a fact, not a "presumption" (see https://www.investopedia.com/terms/t/totalreturn.asp).
Given most any two similar (though non-identical) "Core" portfolio allocations, one with a slight tilt favoring dividend contributions and the other giving neutral weight to dividend payers, I hold that, ALL ELSE BEING MORE OR LESS EQUAL, the fund that consistently pays out higher dividends will usually outperform over the long term. This is the only theory I am trying to put forward here. I believe that ten-year charts for PRWCX provide some support to this thesis, and that David Giroux' stock picking skills will continue to surpass those of his competition. If any of the points I make here have confused you I apologize, but I must confess your arguments don't make a lot of sense to me, either.
@dfp749, That is a promotional material meant to appeal to one’s deep seated anchor, if any. I am more inclined to read the posters’ replies which I skimmed through and found to be well written and objective.
Many believe in income investing, even if it comes at the expense of TR. The topic here appear to drag into that realm. I can sympathize with that belief which can simply be a matter of convenience, as Racqueteer said, and math does not have to be the anchor for all answers for everyone. (I see money’s role for most of us is to allow us buy conveniences, any way.)
I am sure if you meditate on what other posters have shared here, you will find value and perhaps different answers.
Corporations/businesses are simply not going to give you something for nothing.
Of course not, but they should and do reward you for investing. Not for nothing but returning value to shareholders is a legitimate priority for any successful enterprise. Either they pay out a dividend or they repurchase their own shares, which drives up prices. Both methods yield a positive effect on total return OVER TIME.
It's a very old argument that higher distributions are better than lower ones (or none)...and it's a bogus one. Until the 70s blue chip big companies paid div to prove they are healthier. Then the technology revolution took off and these new companies have been paying nothing to lower distributions which did not hurt their stock TR...but this notion of higher distributions has not gone away and cost these investors a lot of performance and money.
Many retirees fall into it too thinking they must have these higher distributions to survive. No, they don't, the following is an easy example how you can generate monthly distribution.
Suppose you have 1 million in Fidelity SP500 (FXAIX) and you want $4K monthly. You can create a sell monthly trade on a specific date to run for years to do it...and you are done.
Unlike stock buybacks by companies, funds with low/no distributions just retain them in NAVs. Any reinvestments are by investors.
Look at CEFs with managed-distribution policies. They have high distributions even if not earned, and then, some portions are considered ROCs. But the reality is that managed-distributions haven't helped CEF TRs or discounts. There is lot of data on this to study.
That is a promotional material meant to appeal to one’s deep seated anchor, if any. I am more inclined to read the posters’ replies which I skimmed through and found to be well written and objective.
Many believe in income investing, even if it comes at the expense of TR. The topic here appear to drag into that realm. I can sympathize with that belief which can simply be a matter of convenience, as Racqueteer said, and math does not have to be the anchor for all answers for everyone. (I see money’s role mostly is to allow us buy conveniences, any way.)
I am sure if you meditate on what other posters have shared here, you will find value and perhaps different answers.
(The above is not meant to end discussion.)
My only concern is to find favorable total return within risk tolerance limits. Pure income investing and pure speculation are both only available to the very rich and the very poor, and those destined for one or the other. Money? Only the rich have money, the rest of us accumulate "stuff" in ever increasing or decreasing amounts.
Suppose you have 1 million in Fidelity SP500 (FXAIX) and you want $4K monthly. You can create a sell monthly trade on a specific date to run for years to do it...and you are done.
Only if you have the stomach for it. If you had $1M on Jan 1, 2022, and set up that trade you would be down $283,000 come October with zero guarantee that things were about to improve, and most likely torturing yourself thinking about what a terrible mistake you made.
Look at CEFs with managed-distribution policies. They have high distributions even if not earned, and then, some portions are considered ROCs. But the reality is that managed-distributions haven't helped CEF TRs or discounts. There is lot of data on this to study.
True enough. There is no free lunch. I once bought into a utilities CEF for its crazy-high yield at what I thought was a reasonable price and wound up holding it for much longer than I had planned just to break even on it. One lesson learned, but a lot more knowledge yet to gain.
Two identical investments will net out equal total returns over a full year cycle, no matter when the distributions are made. That is tautology.
Bingo!
Total returns match not only at the end of a full year but day by day, as I illustrated. To reiterate, this is because each and every day the underlying portfolio of two identical funds will be the same regardless of when each makes distributions. At least assuming all divs are reinvested (the assumption used in computing total return).
Now consider a hypothetical fund that we'll call PRW2X. It has identical holdings to PRWCX but it pays quarterly divs instead of making annual payouts. Its total return (not its share price) thus tracks PRWCX's identically.
If, as you wrote, "PRCWX traditionally lags its peers further and further as the year goes on", then PRW2X will also lag its peers through most of the year even though it pays divs quarterly. That conclusion has to be true because PRW2X and PRWCX have identical total returns day by day.
PRW2X won't have a "massive dividend and CG payout" at the end of the year because it's making quarterly distributions, unlike PRWCX. So PRW2X won't be "squarely back in the pre-tax Total Return lead" after its 4th quarter distribution.
If PRW2X won't regain the lead, then neither will PRWCX, which has an identical portfolio and so has identical total returns.
It was these assertions, the ones stating that large dividends help increase a fund's total return (i.e. enable it to catch up) that I've been questioning. You also wrote I was getting it backward. That it wasn't that higher dividends contribute higher total returns but rather that stocks with higher dividends tend to be better performing stocks.
There's some backing for that proposition, albeit a small advantage and only under some market conditions. I respectfully submit, with little substantiation, that the latent factor may be profitability. Only companies with earnings can pay dividends. By screening for stocks paying high dividends, one is eliminating companies without earnings. Perhaps that is what really matters?
My one shoddy piece of evidence: VSMSX (tracking the S&P 600 which excludes companies w/o earnings) outperforms VRTIX (tracking the R2K that has no such exclusion). It isn't even close.
Thanks, I guess? PRWCX sometimes (often?) lags during the year at least partially because it takes most of the first quarter just to catch up. Your hypothetical PRW2X would begin each cycle with less handicap and therefore less initial lag. Anyway, and more to my point, both PRWCX and PRW2X would still pay out higher dividends AND generate better returns over time than most, if not all, of their peers, if history is any indication (of course not a guarantee). The theory that higher dividends indicate a healthier stock holds merit, but requires further specificity. High yield alone correlates poorly with successful investing, but dividend appreciation consistency (consecutive increasing yields over time) is, more often than not, a sign of positive alignment of a company to its shareholders. Of course it also requires a comprehensive screen and very skillful stock picking to reject failure indicators and avoid value traps. PRWCX applies a dividend appreciation strategy yet straddles the Blend/Growth style line, no mean feat and another good reason to invest with Mr. Giroux.
It was these assertions, the ones stating that large dividends help increase a fund's total return (i.e. enable it to catch up) that I've been questioning. You also wrote I was getting it backward. That it wasn't that higher dividends contribute higher total returns but rather that stocks with higher dividends tend to be better performing stocks.
Well, you'd be hard-put to invest in the S&P without investing in dividend payers. According to S&P, 403 stocks in the 500 pay dividends. All but two of the largest stocks in the index -- BRK and AMZ -- don't pay dividends. If you own a large-cap stock fund, you will get a dividend payout, most likely.
How a fund delivers those dividends may have some short-term effect on returns, but there's no denying that dividends play a massive rose in returns. Since 1989, again according to S&P, the index has gained 1,393% without dividends; it's up 2,930% with dividends. With that kind of performance differential, it's hard to argue that dividends don't matter.
Suppose you have 1 million in Fidelity SP500 (FXAIX) and you want $4K monthly. You can create a sell monthly trade on a specific date to run for years to do it...and you are done.
Only if you have the stomach for it. If you had $1M on Jan 1, 2022, and set up that trade you would be down $283,000 come October with zero guarantee that things were about to improve, and most likely torturing yourself thinking about what a terrible mistake you made.
My post wasn't discussing volatility, and no one advised to put it all in one fund. It was an example of why you should invest based on TR and/or most people use risk-adjusted performance. But why did you start on 1-1-2022? Why not start in 2008 and show it was down over 50%?
waggon:
How a fund delivers those dividends may have some short-term effect on returns, but there's no denying that dividends play a massive rose in returns. Since 1989, again according to S&P, the index has gained 1,393% without dividends; it's up 2,930% with dividends. With that kind of performance differential, it's hard to argue that dividends don't matter.
Why look at more than 30 years ago? The fact is that Divy have been going down. Since 2009, QQQ made about 1900% with minimal divy. High Divy stocks made a lot less than QQQ. (https://schrts.co/UhfIDyIu)
Sigh. Once again, I am not saying that investors should fritter away dividends (dividends don't matter, so don't include them in your total return). Rather, I am saying that whether or not a security pays a dividend does not affect its total return.
I'll return to my PRW2X vs PRWCX example. They start out with the same portfolios. Then at the end of the first quarter, PRW2X distributes divs, while PRWCX retains them (until year end).
Assuming as we do when computing total return that all divs are reinvested, the distribution is on paper only. No money actually leaves the fund. The portfolio of PRW2X, which was identical to PRWCX's the day before the distribution is still identical to PRWCX's on the day of the distribution.
All that happens is that : - the share price of PRW2X drops, - investors get more shares (so that <outstanding shares> times <share price> is unchanged), and - investors get a 1099 showing the payout.
Day by day, even through distributions, the portfolios of the two funds remain identical. So their performance must be identical.
Stocks are only slightly different. The math remains the same. The difference is that dividend payout ratio can be used as a signal of company health (and thus expected performance).
Stocks do not perform well because they pay out dividends, but rather the converse. Better performing companies tend to have div payout ratios within a certain Goldilocks range - not too low and not too high.
I see you are getting a lot of participation. I am a slow reader and a slow writer and so, I shall let you guys have a productive discussion without my interference.
If I may ask a favor, at any point, please make a stand alone (not as a reply) short summary post of what, if anything, you gained from the discussion and I look forward to reading it. I will read your stand alone posts in this thread.
Discussions like this sometimes end with someone stomping off but I am looking forward to someone saying "I get it, I see your point" when this discussion ends.
I'm also going to nitpick a little now that the discussion is (maybe) winding down, but the original question was problematic from the get-go. "Proportional" means that when the variable changes, the result varies by some fixed factor. "Directly proportional" means that if one variable doubles, the result must double. Neither statement can be valid if even a single exception can be found. I would venture that neither statement could possibly be valid for this situation. Just saying...
Comments
@BaluBalu: "@dpf749, I do not think it works that way but I shall let others debate your point."
Anyone interested in the rest of the discussion on the topic at “PRWCX performance YTD” can access it here - https://www.mutualfundobserver.com/discuss/discussion/62260/prwcx-performance-ytd#latest
This kind of gets back to the idea that distributions are 'free money' that have nothing to do with the price assigned to the individual shares. Invariably, anything you take out through distributions or selling reduces the value of what remains invested. Unless your TR is positive, this requires an ever-increasing percentage return to support a fixed distribution from a decreasingly-valued investment.
Corporations/businesses are simply not going to give you something for nothing. The idea that investments with a high distribution are somehow inherently more advantageous than ones which simply generate profits and increase price is, imo, a naive one. Of course, you can get price dislocations and there are certainly advantages to having a way to get predictable income from an investment at times when the investment is struggling. These are issues of convenience, however. and not of financial advantage.
Distributions by funds are so that the IRS can get its annual cut, and they don't have much to do with the TRs.
BTW, variable-annuities don't make any distributions and their TRs are fine (i.e. NOT zero).
ICSH https://stockcharts.com/h-perf/ui?s=ICSH&compare=_ICSH&id=p12703106151
USFR https://stockcharts.com/h-perf/ui?s=USFR&compare=_USFR&id=p79039476549
This statement says that the dividend adds to total return - the "massive dividend" helps a fund that is lagging to catch up (and surpass) in Total Return. In 2023 the price of PRWCX declined on Dec 19th (ex-div date) commensurate with the size of its dividend, thus netting zero increase in Total Return. That is, not putting it squarely back in the Total Return lead.
The equalization of NAV to distribution only holds effect on the ex dividend date and NAV should revert to mean reasonably quickly.
This statement acknowledges this effect but says that it was temporary. Over time (two months was mentioned) the fund would recover this loss. At that point the dividend would have presumably added to the Total Return, putting the fund squarely back in the lead.
It's the underlined section that is problematic.
-------
Consider two funds that pay out over a year roughly equal dividends (percentage wise). One pays quarterly, one annually. As I understand the statements above, the one paying quarterly will pull ahead in total return during the year - it will pay out its quarterly dividend, see its price drop but recover sometime within that quarter. So its total return will for those first three quarters gradually exceed that of the other fund.
But come December, the second fund will make a larger distribution (full year's worth rather than a quarter) and that will let it catch up (perhaps surpass) in total return. That catch up will be complete in a couple of months once the price has "reverted to the mean". At least that seems to be the claim.
For simplicity and clarity, let's consider two purely hypothetical funds, each holding the same one stock. Fund A distributes quarterly, Fund B annually. Suppose the underlying stock pays a div on March 31 (record date much earlier, but irrelevant), and Fund A distributes divs on the same day.
To compute total return, one assumes all fund divs are reinvested. With that assumption, the pre- and post-distribution portfolios of Fund A are the same, and are also the same as the Fund B portfolio (which made no quarterly distribution). Going forward, both funds will have the same total return because they have identical portfolios.
Fund B does not lag just because it doesn't make quarterly distributions. It does not catch up with a "massive dividend" at year end. A dividend payment has no effect on total return.
------
Where I think the confusion arises is in how investors perceive stock divs. Many investors feel that higher div stocks have better returns. But consider stocks like BRK, or see:
https://www.investopedia.com/articles/investing/082015/3-biggest-misconceptions-dividend-stocks.asp
Even if one buys into this theory, funds don't work that way. In part because fund distributions include capital gains which are not part of this stock div theory. In part because there are so many moving parts in funds that one can't tell from the yield what's going on. A fund could be invested in a mix of money losing companies (with no divs) and companies with high div payout ratios (distributing cash since they are stagnant), or strong companies with respectable payout ratios. The fund yields could be similar either way.
https://www.snideradvisors.com/blog/dividends-play-a-big-part-in-performance/
Dividends are a component of total return, as are share price appreciation and distributed capital gains. That is a fact, not a "presumption" (see https://www.investopedia.com/terms/t/totalreturn.asp).
Given most any two similar (though non-identical) "Core" portfolio allocations, one with a slight tilt favoring dividend contributions and the other giving neutral weight to dividend payers, I hold that, ALL ELSE BEING MORE OR LESS EQUAL, the fund that consistently pays out higher dividends will usually outperform over the long term. This is the only theory I am trying to put forward here. I believe that ten-year charts for PRWCX provide some support to this thesis, and that David Giroux' stock picking skills will continue to surpass those of his competition.
If any of the points I make here have confused you I apologize, but I must confess your arguments don't make a lot of sense to me, either.
Many believe in income investing, even if it comes at the expense of TR. The topic here appear to drag into that realm. I can sympathize with that belief which can simply be a matter of convenience, as Racqueteer said, and math does not have to be the anchor for all answers for everyone. (I see money’s role for most of us is to allow us buy conveniences, any way.)
I am sure if you meditate on what other posters have shared here, you will find value and perhaps different answers.
(The above is not meant to end discussion.)
Until the 70s blue chip big companies paid div to prove they are healthier. Then the technology revolution took off and these new companies have been paying nothing to lower distributions which did not hurt their stock TR...but this notion of higher distributions has not gone away and cost these investors a lot of performance and money.
Many retirees fall into it too thinking they must have these higher distributions to survive. No, they don't, the following is an easy example how you can generate monthly distribution.
Suppose you have 1 million in Fidelity SP500 (FXAIX) and you want $4K monthly. You can create a sell monthly trade on a specific date to run for years to do it...and you are done.
Look at CEFs with managed-distribution policies. They have high distributions even if not earned, and then, some portions are considered ROCs. But the reality is that managed-distributions haven't helped CEF TRs or discounts. There is lot of data on this to study.
Bingo!
Total returns match not only at the end of a full year but day by day, as I illustrated. To reiterate, this is because each and every day the underlying portfolio of two identical funds will be the same regardless of when each makes distributions. At least assuming all divs are reinvested (the assumption used in computing total return).
Now consider a hypothetical fund that we'll call PRW2X. It has identical holdings to PRWCX but it pays quarterly divs instead of making annual payouts. Its total return (not its share price) thus tracks PRWCX's identically.
If, as you wrote, "PRCWX traditionally lags its peers further and further as the year goes on", then PRW2X will also lag its peers through most of the year even though it pays divs quarterly. That conclusion has to be true because PRW2X and PRWCX have identical total returns day by day.
PRW2X won't have a "massive dividend and CG payout" at the end of the year because it's making quarterly distributions, unlike PRWCX. So PRW2X won't be "squarely back in the pre-tax Total Return lead" after its 4th quarter distribution.
If PRW2X won't regain the lead, then neither will PRWCX, which has an identical portfolio and so has identical total returns.
It was these assertions, the ones stating that large dividends help increase a fund's total return (i.e. enable it to catch up) that I've been questioning. You also wrote I was getting it backward. That it wasn't that higher dividends contribute higher total returns but rather that stocks with higher dividends tend to be better performing stocks.
There's some backing for that proposition, albeit a small advantage and only under some market conditions. I respectfully submit, with little substantiation, that the latent factor may be profitability. Only companies with earnings can pay dividends. By screening for stocks paying high dividends, one is eliminating companies without earnings. Perhaps that is what really matters?
My one shoddy piece of evidence: VSMSX (tracking the S&P 600 which excludes companies w/o earnings) outperforms VRTIX (tracking the R2K that has no such exclusion). It isn't even close.
PRWCX sometimes (often?) lags during the year at least partially because it takes most of the first quarter just to catch up. Your hypothetical PRW2X would begin each cycle with less handicap and therefore less initial lag. Anyway, and more to my point, both PRWCX and PRW2X would still pay out higher dividends AND generate better returns over time than most, if not all, of their peers, if history is any indication (of course not a guarantee). The theory that higher dividends indicate a healthier stock holds merit, but requires further specificity. High yield alone correlates poorly with successful investing, but dividend appreciation consistency (consecutive increasing yields over time) is, more often than not, a sign of positive alignment of a company to its shareholders. Of course it also requires a comprehensive screen and very skillful stock picking to reject failure indicators and avoid value traps. PRWCX applies a dividend appreciation strategy yet straddles the Blend/Growth style line, no mean feat and another good reason to invest with Mr. Giroux.
It was these assertions, the ones stating that large dividends help increase a fund's total return (i.e. enable it to catch up) that I've been questioning. You also wrote I was getting it backward. That it wasn't that higher dividends contribute higher total returns but rather that stocks with higher dividends tend to be better performing stocks.Well, you'd be hard-put to invest in the S&P without investing in dividend payers. According to S&P, 403 stocks in the 500 pay dividends. All but two of the largest stocks in the index -- BRK and AMZ -- don't pay dividends. If you own a large-cap stock fund, you will get a dividend payout, most likely.
How a fund delivers those dividends may have some short-term effect on returns, but there's no denying that dividends play a massive rose in returns. Since 1989, again according to S&P, the index has gained 1,393% without dividends; it's up 2,930% with dividends. With that kind of performance differential, it's hard to argue that dividends don't matter.
It was an example of why you should invest based on TR and/or most people use risk-adjusted performance.
But why did you start on 1-1-2022? Why not start in 2008 and show it was down over 50%?
waggon: Why look at more than 30 years ago? The fact is that Divy have been going down. Since 2009, QQQ made about 1900% with minimal divy. High Divy stocks made a lot less than QQQ. (https://schrts.co/UhfIDyIu)
Sigh. Once again, I am not saying that investors should fritter away dividends (dividends don't matter, so don't include them in your total return). Rather, I am saying that whether or not a security pays a dividend does not affect its total return.
I'll return to my PRW2X vs PRWCX example. They start out with the same portfolios. Then at the end of the first quarter, PRW2X distributes divs, while PRWCX retains them (until year end).
Assuming as we do when computing total return that all divs are reinvested, the distribution is on paper only. No money actually leaves the fund. The portfolio of PRW2X, which was identical to PRWCX's the day before the distribution is still identical to PRWCX's on the day of the distribution.
All that happens is that :
- the share price of PRW2X drops,
- investors get more shares (so that <outstanding shares> times <share price> is unchanged), and
- investors get a 1099 showing the payout.
Day by day, even through distributions, the portfolios of the two funds remain identical. So their performance must be identical.
Stocks are only slightly different. The math remains the same. The difference is that dividend payout ratio can be used as a signal of company health (and thus expected performance).
Stocks do not perform well because they pay out dividends, but rather the converse. Better performing companies tend to have div payout ratios within a certain Goldilocks range - not too low and not too high.
https://www.dividend.com/dividend-education/what-is-an-ideal-payout-ratio/
I see you are getting a lot of participation. I am a slow reader and a slow writer and so, I shall let you guys have a productive discussion without my interference.
If I may ask a favor, at any point, please make a stand alone (not as a reply) short summary post of what, if anything, you gained from the discussion and I look forward to reading it. I will read your stand alone posts in this thread.
Discussions like this sometimes end with someone stomping off but I am looking forward to someone saying "I get it, I see your point" when this discussion ends.
Enjoy.