Metrics

Distribution Rate vs Yield

Distribution rate measures recent cash payouts as a percentage of price, while SEC yield measures actual investment income earned - a critical distinction for income investors.

Reviewed by DivAgent Research Team
Updated Jan 2026
Sources
SEC.govInvestment Company Act of 1940

Distribution Rate vs Yield — At a Glance

Definition

Distribution rate shows what you receive in cash; SEC yield shows sustainable investment income - the gap reveals return of capital.

Risk Level
Medium
Commonly Seen In
All income ETFs, especially high-yield funds
Warning Sign
Distribution rate more than 3x the SEC 30-day yield
Key Metric
SEC 30-Day Yield (standardized, comparable across funds)
Pro Tip

A fund showing 12% distribution rate but 3% SEC yield has a 9% gap - likely NAV erosion or return of capital.

Example Tickers
$JEPI$SCHD$QYLD$TSLY$VIG

Understanding the difference between distribution rate and yield is essential for evaluating income investments. These terms are often used interchangeably but measure fundamentally different things.

Distribution Rate (or Distribution Yield)

The distribution rate annualizes recent cash payments relative to the current share price. It's calculated as:

Distribution Rate = (Most Recent Distribution × Payment Frequency) / Current Price

This metric shows what you might receive in cash, but it doesn't distinguish between income, capital gains, or return of capital.

SEC 30-Day Yield

The SEC yield is a standardized calculation required by the Securities and Exchange Commission. It reflects the net investment income earned by the fund over the past 30 days, minus expenses, divided by the share price. This gives a more accurate picture of sustainable income.

Why the Difference Matters

A fund showing a 12% distribution rate might have only 3% SEC yield. The gap represents:

  • Return of capital (giving back your own money)
  • Realized capital gains (selling appreciated holdings)
  • Options premium income (which SEC yield may not fully capture)

Red Flags to Watch

  • Distribution rate more than 3x the SEC yield
  • Consistent decline in NAV alongside high distributions
  • Large return of capital components in tax documents
  • Distribution rate exceeding reasonable market returns (15%+)

Practical Application

When comparing income funds, always check the SEC yield for sustainable income, then evaluate whether additional distribution components represent genuine value or principal erosion.

Frequently Asked Questions

Which yield metric should I use for retirement planning?
Use SEC 30-Day Yield for a conservative baseline of what the fund's underlying assets actually earn. Use Distribution Rate only to estimate current cash flow, knowing it may fluctuate or include return of capital.
Why is SEC Yield often lower than Distribution Rate?
SEC Yield strictly measures net investment income (dividends/interest minus expenses). Distribution Rate often includes option premiums, capital gains, and return of capital, which are not 'income' in the strict accounting sense.

DivAgent Educational Standards

This definition is part of the DivAgent Income Academy curriculum. Our glossary is designed to bridge the gap between institutional jargon and retail investor understanding. Each term is reviewed by our Research Team for accuracy, specifically in the context of:

  • Tax implications (Ordinary vs. Qualified)
  • Impact on Total Return calculations
  • Relevance to Option-Income strategies
  • Risk assessment in a retirement portfolio

*While we strive for precision, financial terminology can evolve. Always verify definitions with official regulatory sources (SEC, IRS) when making tax or legal decisions.

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