Santa Clause is coming…to Wall Street!
Santa Claus is coming…to Wall Street!
Well, its December and we will soon say goodbye to an exceedingly difficult year. Although there were a lot of reasons to feel blue, we thought we would turn our attention to something positive, and hope it gives you a little “good cheer”. As investors we are always looking to add to our gains, and very often, December is a month that sees Santa Claus add a little bit of good fortune to our stockings, or more accurately, our portfolios.
You see, every December mutual funds by law must pay out gains to their shareholders in the form of capital gains and dividends. This event usually occurs in the second or third week in December and as long as you are reinvesting your dividends, then you will see a modest boost in your portfolio that will take the form of additional shares.
So, what happens is a mutual fund will send out a notice to their shareholders and the public and declare that they will pay a dividend to shareholders of record on a certain date. Since we reinvest those dividends, we are likely to see some additional shares in our portfolios. The dollar amount will vary based on the number of shares in that fund that you own.
Let us say you have 100 shares of BDCRX mutual fund, and those 100 shares are worth $5000($50 per share) as an example. The mutual fund declares that they will pay a dividend to shareholders of record of that fund on December 18. The dividend that will be paid is 0.29 cents per share. So, since you have 100 shares, you should expect to see an additional $29 that will be used to purchase those shares when the dividend is paid out to you. Since you have 100 shares that total $5000, you will now have $5029.00 in that mutual fund. Keep in mind that the NAV (Net Asset Value) will decrease by that dividend price, because the dividend is coming out of that share price. The fund will fluctuate on the payout date, but the bottom line is you will get that dividend, and overtime it will increase (hopefully) your holding.
These December dividends tend to be the largest dividends paid out in a calendar year. Again, the payout is based on how large the dividend will be, and the number of shares you own, but they are a great way to grow your wealth over time and maybe we can thank Santa for that! Happy Holidays everyone!