[eloff]

OT: If an index fund doesn't pay dividends, what happens to the dividends? Presumably the fund owns shares in every stock in the index, so there should be dividends?

Does it just go towards paying the fund overheads? What about for an ETF index fund?

[kulkarnic]

I misphrased above. The index fund will pay out a dividend if the underlying stocks do. Fortunately for investors, Companies are paying dividends less and less frequently, preferring to do stock buybacks (which improve the stock value) instead. Dividends are also "qualified" if you've held the stock long enough, so you pay the lower capgains rate.

[garry]

Dividends and stock buybacks are both ways companies enrich their stock holders. But I view them as largely the same thing. When a company doesn't have new markets, then it doesn't create new products or services, so it literally doesn't know what to do with the money, so it just plows it back to shareholders, and these are just two ways that happen.

[klipt]

Buybacks are much more tax efficient though. If you would have reinvested all dividends (after paying taxes on them), with a buyback you instead do nothing and pay no tax.

[adamlett]

> stock buybacks (which improve the stock value)

That's a misconception. Stock buybacks create value only if the stock is undervalued.