Q: Hi 5i Team,
I am trying to understand how RETURN of Capital works on ETF.
Eg: Buy 1000 shares at 14 = 14000 and get 8% dividend.
Sell 1000 shares after a year at 15 = 15000. So Total return is 15% return on my investment. (8% dividend plus 1K capital gain = 7%)
Please advise if the above calculation is correct or is it the original investment minus 8% dividend.
Thanks for the great service
I am trying to understand how RETURN of Capital works on ETF.
Eg: Buy 1000 shares at 14 = 14000 and get 8% dividend.
Sell 1000 shares after a year at 15 = 15000. So Total return is 15% return on my investment. (8% dividend plus 1K capital gain = 7%)
Please advise if the above calculation is correct or is it the original investment minus 8% dividend.
Thanks for the great service
5i Research Answer:
This calculation is a bit different than return of capital on an ETF. In the example, there is a capital gain of $1,000 on an investment of $14,000, over one year. This as noted is a 7.1% capital gain (not a return of capital). With an 8% dividend, this is 15.1% total return over the period. An alternative method to calculate is to take the initial $14,000 and compare it to what it is worth after a year. In this case $16,120, consisting of the capital gain of $1,000 and $1,120 in dividends. The calculation is thus ($16,120/$14,000) divided by $14,000, or 15.1%.