Hugh Lam

I think you made a good point.

So the yield is effectively just a mathematical formula.

So it's the amount of distributions or income in a particular year divided by the unit price of that particular exposure.

And so you can spit out a number, it's in a percentage form and you get this yield.

Now the issue with that is of course, if you have any sort of spike in the distribution and the unit price remains the same, then that's gonna jack up the dividend yield.

But we don't necessarily understand the source of why that might be the case.

This is where risks such as following or potentially getting into what we call a dividend trap occurs.

What a dividend trap is, typically what we see is that stocks that have a high dividend yield, we're talking 10%, 11%, 12%, typically they're candidates for being a dividend trap where they are showing a high yield for a reason.

So as I mentioned, if you look at the formula,

If a share price is falling due to bad earnings, bad management, CEOs kicked out of office, then the share price is going to collapse.

Mathematically, right, that's going to inflate the distribution yield.

So you might be looking at an interesting stock yielding 12%, jumping into that without understanding what the company is doing.

you know you're risking the potential for immense capital loss that's really where the issue of just following and chasing the dividend yield is you really want to understand okay why is it like that and where if anything where is the underlying income coming from what business units does this company have in order to ensure that this yield can be sustainable so really going underneath the hood one step further makes a lot of sense because

just chasing that number can be quite painful.

Now, the other thing is there is other sort of mechanics involved with the distribution yield.

With an ETF, there's typically rebalances that occur.

What are rebalances?

You're typically just bringing in new or old securities out of the index.

So you're making sure that index is fresh every sort of quarter or six months, et cetera.

you know, ETFs have to pay out any capital gains that's accrued within that ETF.