Distribution yield

Distribution yield is a measure of how much income a fund has recently paid out to shareholders, expressed as a percentage of its current share price. It is calculated in one of two ways. The annualized version takes the fund's most recent distribution, such as a monthly or quarterly payout, annualizes it, and divides by the fund's current net asset value or market price. The trailing version adds up the distributions paid over the past 12 months and divides by the same price.

When it relies on the most recent payout rather than a full year of actual distributions, distribution yield can be a noisy or misleading guide to what an investor will receive going forward. A fund that just made an unusually large payout, perhaps from a capital gains distribution or a return of capital, can show a distribution yield well above what it will sustain in future periods. This differs from a fund's standardized SEC yield, which uses a specific regulated formula based on the fund's net investment income rather than simply annualizing the latest cash distribution, and the two figures can diverge meaningfully for the same fund.

Investors comparing income focused funds, such as bond funds or dividend focused ETFs, often look at distribution yield as a quick gauge of current income, but should check whether the underlying distributions are coming from genuine investment income or partly from return of capital, since the latter is not really investment income at all and can make a fund's yield look higher than its true earning power supports.