Yield Tilt Index Fund

  

Categories: Bonds, Investing, Econ

Imagine rides at theme parks with the word “tilt” in them, because that’s what the yield tilt index fund does.

Yield tilt index funds copycat the security holdings of a standard stock index (like the S&P 500 or the DJIA), except that they tilt the weight towards stocks with the higher dividend yields.

Basically, they’re mutual funds with high yields that follow the lead of an index of sorts. Living that tilt life is the sweet life of dividends. Rich people in particular favor yield tilt index funds, because they can buy one in a super-shiny tax-sheltered investment account, paying less in taxes and getting more money (since dividend payments to shareholders are taxed double).

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Finance: What is an Accumulated Dividend...9 Views

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finance a la shmoop what is an accumulated dividend okay you know what

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a dividend is companies generally commit to paying it when they have so much [Example of dividend meaning on a 100 dollar bill]

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extra cash profit that they really don't know what to do with the dough yeah nice

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place to be in the case of a preferred stock the dividends aren't just a

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optional-ish they operate more like bond interest only with a catch

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that is dividends on preferred stock can in fact be halted without the company

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being repossessed by the debt holders like in the case where the company falls [Prize wheel lands on hard times]

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on hard times or it wants to preserve its cash to buy a competitor or it just

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wants another jet with a water slide thing on it well yeah it can halt its [Person slides down a jet slide]

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dividend in those cases and well there are two types of preferred stock in this

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realm the ones that pay cumulative dividends and the ones that don't

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cleverly named non-cumulative say a company has halted dividends from its

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preferred for three and a half years and it was paying five bucks a quarter in [Dividend distribution graph]

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dividends from those cumulative preferred well if it was to resume

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paying dividends on them it would first have to pay all back fourteen quarters

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worth of dividends before it began to issue more dividends or pay them to its

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preferred holders that is it owed three years times four quarters or twelve

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quarters plus half a year or two quarters for a total of fourteen

01:29

quarters at five bucks a quarter a share that's five times fourteen or seventy [Formula of non-cumulative dividends]

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dollars a share in back cumulative dividends big obligation but it has to

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pay that amount before it can resume dividend payments why would a company

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have a cumulative feature in its preferred dividend obligation well

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because investors forced it to do so or they wouldn't invest they were worried [Person swipes away stacks of money]

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that the preferred dividends might be just some merrily stopped and then the

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investors would have little or no return on their investment in the preferred and

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this can be a problem for companies that have fallen on hard times they are

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essentially made illiquid in that they can't afford to pay the back dividends [Example of illiquid meaning]

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on the preferreds and they can't raise more capital with this blight on their

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record of having stopped paying a divvy well most [Non cumulative stock stickers appear on a table]

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furred stocks are non-cumulative and if companies decide to just stop paying

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them they can but if they do it's kind of like they've reneged on a handshake [Two guys giving a handshake]

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and you know investors talk so like good luck to the company ever trying to raise

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capital again from the cold cruel outside world yeah welcome to Wall

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Street [Wall Street road sign]

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