Juicing the dividend yield: Mutual funds and the demand for dividends

Some mutual funds purchase stocks before dividend payments to artificially increase their dividends, which we call “juicing.” Funds paid more than twice the dividends implied by their holdings in 7.4% of fund-years examined. Juicing is associated with larger inflows, and is more common among funds w...

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Bibliographic Details
Published in:Journal of financial economics 2015-06, Vol.116 (3), p.433-451
Main Authors: Harris, Lawrence E., Hartzmark, Samuel M., Solomon, David H.
Format: Article
Language:English
Subjects:
Assets
Behavioral finance
Demand
Dividends
Investment trusts
Mutual funds
Payments
Payout policy
Stock returns
Stocks
Studies
Taxes
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Summary:Some mutual funds purchase stocks before dividend payments to artificially increase their dividends, which we call “juicing.” Funds paid more than twice the dividends implied by their holdings in 7.4% of fund-years examined. Juicing is associated with larger inflows, and is more common among funds with unsophisticated investors. This behavior is consistent with an underlying investor demand for dividends, but is hard to explain by taxes or need for income, as funds can generate equivalent tax-free distributions by returning capital. Juicing is costly to investors through higher turnover and increased taxes of 0.57% to 1.52% of fund assets per year.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2015.04.001