Stocks purchased through ETFs pay dividends to shareholders like any other dividend-paying stock. Any dividends collected from these stocks will then be passed on to the shareholders. Most ETFs pay dividends to shareholders quarterly, but some pay on a monthly basis.
The tax rate for qualified dividends and capital gains is lower than the rate for nonqualified dividends and traditional income. Investors can increase their returns by meeting the tax requirements for qualified dividends.
A nonqualified dividend is dividend income that doesn’t qualify for the specialized tax rate for qualified dividends. Regular dividends are separated into two categories: qualified and ordinary, or nonqualified dividends.
Dividends and stock-price increases make up the total return on stock investments. Apart from representing a substantial portion of returns for investors, dividends also provide an income stream for the investor.