The bond interest dividends are the specific amounts of the bond interest that are not available to you in the form of cash dividends. For example, you can’t be the owner of a bond that holds a particular percentage of your bond interest.
The bond interest dividends can be either a lump sum or an annual amount. The bonds can be held by your employer, employee, or a third-party like a trust.
We are all guilty of not paying more attention to our bond interest on a regular basis. We just never seem to notice the dividends. It’s not because it’s such a small percentage of your bond interest, it’s more because we don’t realize how important these dividends are.
Bonds are one of the best predictors of interest rate changes. If we have a bond we are paying a small percentage of our bond interest for, then we will probably have to pay a small amount of interest in the future. But if we have a bond we are paying a large percentage of our bond interest for, then we may have to pay a much larger amount in the future. So if we hold a large amount of bonds, they might show us a small future income.
If this is true, then the value of some securities should rise over time. In fact, the best way to estimate the future value of a security is to buy it now. This is exactly what a bond investor does. Bond investors buy bonds at a discount so they can sell them at a profit. The reason bond investors buy bonds now is because they are less likely to pay a large amount of interest in the future, which is what the bond dividend is designed to protect.
Bond investors, like you and me, only get the dividend if the bond they buy pays a small amount of interest now. The problem is that bond investors don’t know what that small amount of interest will be. Bonds that pay 1 percent, or maybe even 0.1 percent, earn that small amount of interest for the same reason you don’t know what the dividend is going to be. Bond investors are most likely not getting a 1 percent dividend from their bond investments anyway.
Bond investors only have an inkling of what the minimum amount of bond interest they are eligible for is, so they could have gotten away with paying a 0.1 percent dividend and not realized it, but the bond company may have changed the terms of the bond.
The same problem affects the mutual fund industry, where the term “minimum” might mean a minimum amount of money to invest, and the term “maximum” could mean that the fund actually has to make up the difference between the two. Because mutual funds are designed to provide investors with a certain level of return, the fund managers are allowed to make choices that would make the fund’s returns fall below that minimum amount.
That is all good and fine, but the fact that the fund manager can also choose to take the maximum return of the fund is another potential issue. Say investors decide that a fund manager will make the maximum return on the fund. If that manager decides to take a minimum return, then the fund’s overall performance may be below that minimum amount. But if the manager will take no return at all, then investors may not get the full benefit of the fund.
What happens if the fund manager decides to take the maximum return on the fund? Then the fund’s performance will be below that minimum amount. But what if the fund manager decides to take the minimum return on the fund? Then investors may not get the full benefit of the fund. But if the manager decides to take no return at all, then investors may not get the full benefit of the fund.