what is a distribution yield 
a distribution yield is the measurement of cash flow paid by an exchange traded fund etf real estate investment trust or another type of income paying vehicle rather than calculating the yield based on an aggregate of distributions the most recent distribution is annualized and divided by the net asset value nav of the security at the time of the payment understanding distribution yieldsdistribution yields can be used as a metric for cash flow comparisons for annuity and fixed income investments but basing the calculation on a single payment can distort the actual returns paid over longer periods the calculation for distribution yields employs the most recent distribution which may be interest a special dividend or a capital gain and multiplies the payment by 12 to get an annualized total the annualized total is then divided by the net asset value nav to determine the distribution yield while this metric is often used to compare fixed income investments the single payment calculation method can potentially extrapolate larger or smaller than normal payments into distribution yields that do not reflect the actual payments made over the trailing 12 months or another representative period of time calculating distribution yieldsthe distribution of one time special dividends can skew distribution yields higher than actual returns when a non recurring dividend is paid by a company in a fund s portfolio the payment is included with the recurring dividends for that month a yield calculated on a payment including a special dividend may reflect a larger distribution yield than is actually being paid by the fund yield calculations based on distributions composed of interest and recurring dividends are generally more accurate than those using one time or infrequent payments the exclusion of non recurring payments however can result in a distribution yield lower than the actual payouts during the preceding year distribution yields generally provide a snapshot of income payments for investors but the variables posed by capital gains distributions and special dividends can skew returns to determine true yield investors can total all distributions over the preceding 12 months and divide the sum by the nav at that time capital gains and distribution yieldmutual funds and etfs usually issue capital gains distributions on an annual basis these distributions represent the net trading profits realized during the year which are divided into long term and short term gains a distribution yield calculated using either of these payments has the potential to reflect an inaccurate annualized return for example calculating the yield based on a long term capital gain distribution greater than monthly interest payments results in a distribution yield higher than the amount paid to investors over the preceding year on the other hand a calculation using a capital gains distribution less than monthly interest payments results in a lower than actual distribution yield sec yield vs distribution yieldinvestors often consider and compare the sec yield also known as the 30 day yield with the distribution yield while making an investment decision while both estimates are estimates of bond returns they are calculated differently the sec yield is an annualized figure based on returns over the most recent 30 day period as outlined above the distribution yield on the other hand takes the most recent distribution multiplies it by 12 to get an annualized total and then divides the result by the nav opinions between analysts and investors are split over which yield is better to evaluate investment returns proponents of the sec yield point to the fact that calculations for distribution yield vary between bond funds making it an unreliable indicator of performance meanwhile calculations for the sec yield are standardized and determined by a centralized agency because it is based on yields from trailing periods the distribution yield is also considered to be an inaccurate representation of current economic circumstances according to vanguard the sec yield approximates the after expenses yield an investor would receive yearly assuming bonds are held till maturity and income is reinvested but bonds are rarely held till maturity by a majority of investors for the most part they are traded in the open market where conditions are constantly in a state of flux due to external circumstances in a 2008 note discussing the importance of bond yields research firm morningstar made the case that 12 month yields offer a more accurate picture than the sec yield because it accounts for 12 distinct dividend payments reflecting the bond s performance under a variety of different circumstances example of distribution yieldsuppose a fund is priced at 20 per share and collects 8 cents in interest payments during a month the interest is multiplied by 12 for an annualized total of 96 cents dividing 96 cents by 20 gives a distribution yield of 4 8 