The iShares S&P 500 ETF (ASX: IVV) is one of the largest and most popular exchange-traded funds (ETFs) for Aussies to utilise. It has rightly created a reputation for capital growth.
But, what if we ever want our bank accounts to benefit from the financial gains? I wouldn't particularly want to sell an investment if I believe in its long-term future. Plus, a sale would likely mean paying (capital gains) tax because of the size of the gains it has delivered over the years.
Therefore, a sale of IVV ETF units may be detrimental for wealth-building. Investors can benefit from owning businesses when they share their profit with investors in the form of a dividend. However, not every company pays a dividend.
The IVV ETF is not a company, it's a trust, which plays a major part in whether the investment pays a dividend (or distribution) or not.
Does the iShares S&P 500 ETF (IVV) pay a dividend?
Entities that operate in a trust structure, such as ETFs, must distribute the income they receive/profit they generate.
Therefore, if the IVV ETF receives dividend income from its portfolio holdings, then it must send that money onto investors.
The IVV ETF is invested in 500 of the largest businesses listed in the US and plenty of them are among the most profitability businesses in the world.
Some of the most recognised names in the holdings include Nvidia, Microsoft, Apple, Meta Platforms, Alphabet, Visa, Mastercard and Walmart.
Each of the above businesses do pay a dividend, which the IVV ETF passes onto investors at the next available opportunity. The fund pays a distribution every three months, so investors don't need to wait too long for the next payment to come around.
An ETF also distributes any crystallised (shares sold) gains that it made during the year, which is added to the income distribution I mentioned above. This part can be quite variable each year.
Is the yield appealing?
Just because it pays a dividend doesn't automatically mean the payout will be compelling.
There are a number of businesses within the IVV ETF that don't pay a dividend, such as Tesla, Berkshire Hathaway and Netflix. This has a negative effect on the potential dividend yield of the IVV ETF.
Plus, the fund's biggest positions that do pay a dividend have a low dividend yield themselves because of their relatively high price/earnings (P/E) ratios and fairly low dividend payout ratios.
All of that combined into the IVV ETF having a dividend yield of 1.06% in the 12 months to 31 August 2025.
That's not a compelling dividend yield, but it does send passive dividend income to investors each year.
For investors looking for income, there are other investments that seem much more appealing.
