Juicing the Dividend Yield: Mutual Funds and the Demand for Dividends

Some mutual fundspurchase stocks before dividendpayments to artificially increase their dividends, which we call “juicing.” Funds paid more than twice the dividendsimplied by their holdings in 7.4% of fund-years examined. Juicing is associated with larger inflows, and is more common among funds with unsophisticated investors. This behavior is consistent with an underlying investor demand for dividends, but is hard to explain by taxes or need for income, as funds can generate equivalent tax-free distributions by returning capital. Juicing is costly to investors through higher turnover and increased taxes of 0.57% to 1.52% of fund assets per year.