Are ETFs that pay dividends less desirable?

 Hello. There area unit several moving components to the current question.

To begin, I with all respect pain the advice/opinion given within the link you provided. common shares dividends paid by qualified U.S. firms really relish tax-favored standing (i.e., lower federal tax rate) relative to standardtaxation rates. To the extent that associate ETF could invest in shares of firms that pay qualified dividends, the dividends that area unit passed on to shareholders through the ETF is also a pleasant, gently taxed financial gainstream. For a lot of on this, see the subsequent link - however ETF Dividends area unit Taxed (Investopedia).

With relation to your ishares PFF, this ETF invests in preferredstocks. The dividends paid by most well-liked stocksdon't seem to be qualified U.S. common shares dividends, and, thus, area unit taxed as standard financial gain.

The fact that you just own PFF may additionally justify why you have got not seen abundant within the mannerof capital appreciation from your ETF, as most well-liked stocks tend to not trade abundant on top of their $25nominal value, lest they're known as by the provision company. most well-liked stocks will, however, loseimportant price in an exceedingly rising charge per unit surroundings or within the event of company specificmonetary difficulties.

There are, in fact, lots of ETFs that invest in stocks, as well as people who invest in dividend paying stocks that have rewarded shareholders with value appreciation over the last many years. At the top of the day, like its open-end fund siblings, the modification in price in an exceedingly ETF should mirror the worth of the underlying portfolio of securities during which it invests. Since ETFs area unit generally less inclined to create capital gains distributions, the increase in share value over time is a lot of evident in ETFs.

It is additionally price mentioning that thought of dividend/interest paying ETFs may additionally rely uponwhether or not the ETFs area unit control in an exceedingly ratable account or a tax-sheltered retirement plan.

Always an honest plan to ask one’s comptroller on such matters.

Dividends area unit continually ratable once distributed or reinvested if the investment is in an exceedingly non-retirement account. If the account may be a retirement plan, the dividends may be reinvested while not immediate taxation or no taxation if they're in an exceedingly Roth IRA. IShare PFF may be a smart fund if you're seekingfinancial gain. Since it's preferred shares, it acts a lot of sort of a bond. there's tax risk if it's not in an exceedingly retirement plan.

If you wish to reinvest your dividends, a fund is also a stronger selection. If you wish to use the dividend moneyfor alternative functions, then there's nothing wrong with associate ETF. Either way, dividends area unit taxedsupported their nature. Qualified dividends at third, 15%, or two hundredth betting on your financial gain, and non-qualified dividends as standard financial gain.