Investors looking to earn regular dividend income often seek out mutual funds and ETFs that provide steady payouts. If you’re considering the Fidelity Zero Large Cap Index Fund (FZROX) for your portfolio, you may be wondering – does FZROX pay dividends?
The short answer is yes, FZROX does pay dividends. However, the dividend yield is lower than many actively managed equity funds and ETFs.
What is FZROX?
FZROX is an index fund offered by Fidelity that tracks the Zacks Large Cap Inv Grade Composite Index. It is a passively managed fund that aims to replicate the performance of this index, which consists of large U.S. companies with investment-grade ratings.
Index fund that tracks the Zacks Large Cap Inv Grade Composite Index
FZROX is designed to provide investors with exposure to a diversified portfolio of large-cap stocks. By tracking the Zacks Large Cap Inv Grade Composite Index, the fund aims to capture the performance of these stocks and provide investors with broad market exposure.
Passively managed, tracks large U.S. companies
FZROX is a passively managed fund, which means that it aims to replicate the performance of its underlying index rather than actively selecting and managing individual stocks. The fund focuses on large U.S. companies, which are typically well-established and have a history of stable earnings.
Has an expense ratio of 0%
One of the most attractive features of FZROX is its expense ratio of 0%. This means that investors do not have to pay any management fees to invest in this fund, making it a cost-effective option for those looking to gain exposure to large-cap stocks.
Offered commission-free by Fidelity as part of their zero fee funds
FZROX is offered by Fidelity as part of their zero fee funds, which means that investors can buy and sell shares of the fund without incurring any commission charges. This makes it even more affordable for investors to invest in FZROX and take advantage of its low expense ratio.
FZROX Dividend Yield and Payment Schedule
Tracks index that yields around 1.5%
FZROX, also known as the Fidelity ZERO Total Market Index Fund, is an index fund that closely tracks the performance of the Fidelity U.S. Total Investable Market Index. This index is designed to represent the performance of the overall U.S. stock market and includes large, mid, small, and micro-cap stocks.
As of the most recent data available, the index has historically yielded around 1.5% on average.
Paid quarterly dividends since inception in 2018
Since its inception in 2018, FZROX has consistently paid dividends on a quarterly basis. This means that investors in FZROX can expect to receive regular income from their investment throughout the year.
Quarterly dividend payments provide investors with a predictable cash flow and can be a valuable source of passive income.
Q1 2022 dividend was $0.28 per share
In the first quarter of 2022, FZROX paid a dividend of $0.28 per share. This dividend amount is subject to change and may vary in future quarters based on the performance of the underlying stocks in the index.
It’s important to note that dividend payments are not guaranteed and can fluctuate over time.
Dividend yield fluctuates based on performance of underlying stocks
The dividend yield of FZROX is directly tied to the performance of the underlying stocks in the index. If the stocks in the index perform well, the dividend yield may increase. Conversely, if the stocks in the index perform poorly, the dividend yield may decrease.
It’s important for investors to carefully monitor the performance of the index and consider the potential impact on dividend payments.
Why FZROX Dividend Yield is Lower Than Some Funds
Passively managed based on index, doesn’t aim to maximize dividends
FZROX, also known as Fidelity ZERO Total Market Index Fund, is a passively managed fund that tracks the performance of the total U.S. stock market. Unlike actively managed funds that aim to maximize dividends, FZROX does not have a specific goal of generating high dividend yields for its investors.
Instead, its primary objective is to replicate the performance of the index it is based on, which may not prioritize dividend income.
Focuses on large U.S. stocks, many of which have lower yields
One of the reasons why FZROX has a lower dividend yield compared to some other funds is its focus on large U.S. stocks. These stocks, typically found in major market indexes such as the S&P 500, may not have as high of a dividend yield compared to smaller companies or specific sectors.
Since FZROX aims to replicate the performance of the overall market, its holdings are weighted toward these larger stocks, which can impact its dividend yield.
Very low expense ratio means fewer assets go toward distributions
FZROX boasts an incredibly low expense ratio, which means that a smaller portion of its assets goes toward covering expenses. While this is great news for investors in terms of lower costs, it also means that there is less money available to distribute as dividends.
The low expense ratio is a key feature of FZROX, as it allows investors to keep a larger portion of their returns, but it does have an impact on the fund’s dividend yield.
Still provides steady income vs. holding individual stocks
Although FZROX may have a lower dividend yield compared to some other funds, it still provides investors with a steady stream of income. Holding individual stocks can be risky, as their dividend payments can fluctuate or even be eliminated altogether.
By investing in FZROX, investors can benefit from the stability and diversification of a broad market index, which can help mitigate the risks associated with relying on individual stock dividends.
Who Should Consider FZROX?
FZROX, or Fidelity ZERO Total Market Index Fund, is a popular choice among a variety of investors. Here are a few groups of people who may want to consider adding FZROX to their investment portfolio:
Passive investors looking for broad market exposure
For those who prefer a hands-off approach to investing, FZROX offers a convenient option. As an index fund, it aims to track the performance of the total U.S. stock market. This means that investors can gain exposure to a wide range of companies across various sectors.
Whether you’re a beginner or an experienced investor, FZROX provides a simple way to diversify your holdings and participate in the overall growth of the market.
Those who prioritize minimizing fees over maximizing dividend yield
FZROX is known for its low expense ratio, which is the annual fee charged by the fund for managing your investment. In fact, it is one of the few funds that offer expense ratios of 0%, meaning you don’t have to worry about paying any management fees.
For investors who are focused on keeping costs low, FZROX can be an attractive option compared to other funds that charge higher fees.
Investors who want to reinvest dividends for growth rather than income
Unlike some other funds that pay dividends to investors on a regular basis, FZROX does not distribute dividend payments. Instead, it reinvests any dividend income back into the fund, allowing for potential growth over time.
This can be particularly appealing to investors who are looking to accumulate wealth and are not reliant on immediate income from their investments.
Works well for long-term buy-and-hold investors
If you have a long-term investment horizon and are looking for a fund that you can hold onto for years, FZROX may be a good fit. Its focus on tracking the total market index provides a stable foundation for long-term growth.
By staying invested in FZROX over time, investors have the potential to benefit from the overall performance of the U.S. stock market.
Remember, before making any investment decisions, it’s important to consider your own financial goals, risk tolerance, and investment time horizon. It may also be helpful to consult with a financial advisor who can provide personalized advice based on your individual circumstances.
Alternatives For Income Investors
Income investors are always on the lookout for investment options that provide consistent returns. While dividend-paying stocks are a popular choice, there are other alternatives worth considering. Here are a few options for income investors:
Actively managed equity funds focusing on dividends
Actively managed equity funds are a great option for income investors who want to benefit from dividend payments without the hassle of managing their own portfolio. These funds are managed by professional fund managers who actively seek out stocks that pay regular dividends.
The Fidelity ZERO Large Cap Index Fund (FZROX) is an example of such a fund. While FZROX does not pay dividends directly, it focuses on investing in dividend-paying stocks, which can potentially provide income to investors.
ETFs targeting high dividend stocks like VIG, SCHD
For income investors looking for a more diversified approach, exchange-traded funds (ETFs) that target high dividend stocks can be a good option. Two popular examples of such ETFs are the Vanguard Dividend Appreciation ETF (VIG) and the Schwab U.S. Dividend Equity ETF (SCHD).
These ETFs invest in a basket of stocks that have a history of consistently increasing their dividends over time. Investing in these ETFs can provide investors with exposure to a wide range of dividend-paying companies across different sectors.
REITs and bond funds for higher yield potential
Real estate investment trusts (REITs) and bond funds are another alternative for income investors looking for higher yield potential. REITs are companies that own and operate income-generating real estate properties, such as office buildings, shopping malls, and apartments.
Investing in REITs can provide regular income through rental payments. Bond funds, on the other hand, invest in a portfolio of fixed-income securities issued by governments, municipalities, and corporations. These funds pay interest to investors on a regular basis.
Both REITs and bond funds can offer attractive yields for income investors.
Individual stocks with consistent dividend growth
For income investors who prefer to build their own portfolio, individual stocks with consistent dividend growth can be a rewarding option. Companies that consistently increase their dividends demonstrate financial stability and a commitment to returning value to shareholders.
Some well-known examples of such companies include Johnson & Johnson, Procter & Gamble, and Coca-Cola. Researching and selecting individual stocks with a track record of dividend growth can provide income investors with the opportunity to earn regular dividends.
It’s important for income investors to carefully consider their investment objectives, risk tolerance, and time horizon before choosing the right option for their portfolio. Diversification and regular monitoring of the chosen investments are also crucial for long-term success.
While FZROX does pay dividends, its yield is lower than many actively managed equity funds due to its passive strategy and low fee structure. The modest but steady dividends can provide income for long-term investors.
Those focused specifically on maximizing dividends may want to look at alternatives like dividend ETFs, REITs, and targeted equity funds.