Dictionary - Dividends
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Annuitization

Annuitization is the act of triggering a series of payments, usually from an annuity. An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank or other financial institution that in return agrees to give the investor either a higher lump-sum payment in the future or a series of guaranteed payments. Read more

Blue-Chip Stock

A blue-chip stock is a stock of an established company that has consistently shown qualities like generating consistent earnings, paying generous dividends or increasing revenue. Blue-chip stocks are shares of stock issued by companies which have a reputation for financial stability and a record of successfully weathering any economic condition. Read more

Brokered Certificate of Deposit

A brokered certificate of deposit (a brokered CD) is a CD sold by a brokerage firm. A CD is a time deposit with a bank or financial institution. Read more

Cash Dividend

A cash dividend is a cash payment made to the shareholders of a corporation. Generally, cash dividends are reported in dollars per share when discussing common stock. Read more

CD Ladder

A CD ladder is an investing strategy whereby the investor staggers the maturity of ("ladders") the certificates of deposit in his portfolio so that the proceeds can be reinvested at regular intervals. For example, say you have $75,000 to invest. Read more

Certificate of Deposit (CD)

A certificate of deposit (CD) is a relatively low-risk debt instrument purchased directly through a commercial bank or savings and loan institution. The certificate of deposit indicates that the investor has deposited a sum of money for specified period of time and at a specified rate of interest. Read more

Daily Factor

Daily factor is the amount of yield earned in a day. Recall that yield is the percentage interest an investor would earn if he or she purchased a given bond at its current market price. Read more

Declaration Date

In the income investing world, a declaration date is the date on which a company announces an upcoming dividend payment, usually by issuing a press release a few weeks before the dividend is actually paid. Let's assume you own 100 shares of Company XYZ. Read more

Dividend

Dividends are payments from corporate earnings to company shareholders, and they're one way to receive a return from owned shares.A simpler definition for dividends is that they’re a reward for investing your money with a company.  Dividend payments typically take one of two forms:  Cash paid to you (more common)  Additional stocks issued to you (less common, but you can sell and convert to cash) Companies may also offer dividend reinvestment programs (DRIPs). Read more

Dividend Achievers

The term "dividend achievers" is used to describe an elite group of companies that have improved their annual regular dividends for at least 10 consecutive years and meet certain liquidity requirements.  Additional eligibility requirements for dividend achievers include: 1) being listed in the NYSE or Nasdaq and 2) having a minimum average daily cash volume of $500,000 per day for the months of November and December prior to the Index's reconstitution date.  If a company meets these requirements they qualify for the Broad Dividend Achievers Index.They do not have to be on the S&P 500 list to qualify. Read more

Dividend Aristocrats

The term "dividend aristocrats" is used to describe Standard & Poor's (S&P) 500® Index companies that have increased their dividend payouts each and every year for at least 25 consecutive years. Typically, a dividend aristocrat is a large and relatively stable blue-chip company with a healthy balance sheet. Read more

Dividend Capture Strategy

The dividend capture strategy is the act of purchasing a security for its dividend, capturing the dividend, and then selling the security to buy another about to pay a dividend.By doing this, investors can receive a steady stream of dividend income instead of waiting for an individual holding to pay its regular dividend. Read more

Dividend Declaration Date

A dividend declaration date is the date on which a company announces an upcoming dividend payment, usually by issuing a press release a few weeks before the dividend is actually paid. Let's assume you own 100 shares of Company XYZ. Read more

Dividend Discount Model (DDM)

The dividend discount model (DDM) is a method for assessing the present value of a stock based on the growth rate of dividends. The dividend discount model (DDM) seeks to estimate the current value of a given stock on the basis of the spread between projected dividend growth and the associated discount rate. Read more

Dividend Payable Date

The dividend payable date is the date on which a company pays a dividend to its shareholders of record. Let's assume you own 100 shares of Company XYZ. Read more

Dividend Record Date

A dividend record date is the date on which the company finalizes the list of investors who qualify as "shareholders of record." Investors listed as shareholders of record will receive the firm's dividend payment. Let's assume you own 100 shares of Company XYZ. Read more

Dividend Reinvestment Plan (DRIP)

A dividend reinvestment plan (DRIP) is an arrangement offered by companies to investors wishing to receive additional shares of company stock in lieu of cash dividend payments. In many cases, optimistic investors prefer to gain additional equity in a company rather than receive the cash dividends related to their holdings. Read more

Dividend Yield

Dividend yield is the annual dividend payment shareholders receive from a particular stock shown as a percentage of the stock's price.(Dividends are corporate earnings distributed to company shareholders typically through the two forms of cash or stock.) The formula for dividend yield is: Dividend Yield = Annual Dividend / Current Stock Price For example, let's assume you own 500 shares of Company XYZ, which pays $1.10 per share in annual dividends. Read more

Earning Assets

Earning assets are assets that generate income like interest or dividends. Typically, earning assets require very little ongoing work from the owner of the assets. Read more

Effective Annual Interest Rate

The effective annual interest rate is the rate of interest an investor earns in a year after accounting for the effects of compounding.  The formula for effective annual interest rate is: (1 + i / n)n - 1 Where:  i = the stated annual interest rate n = the number of compounding periods in one year For example, let’s assume you buy a certificate of deposit with a 12% stated annual interest rate.If the bank compounds the interest every month (that is, 12 times per year), then using this information and the formula above, the effective annual interest rate on the CD is: (1 + .12/12)12 - 1 = .12683 or 12.683% Let’s look at it from another angle. Read more

Equity Income Fund

An equity income fund is a mutual fund composed largely of dividend-paying stocks. Equity income funds are made up of a variety of different income investments, but they generally invest in securities from established, creditworthy companies that make consistent dividend payments. Read more

Ex-Dividend Date

Some stocks pay cash (or additional stock) dividends to their investors throughout the year.Also referred to as “ex-date”, the ex-dividend date is important for investors because it determines whether they’re entitled to a dividend.  In order to receive a dividend, you need to be the holder (on record) of a given stock no later than the day before its ex-dividend date. Read more

Fixed Income Security

A fixed income security is an investment that pays regular income in the form of a coupon payment, interest payment or preferred dividend. Fixed income securities provide periodic income payments at an interest or dividend rate known in advance by the holder. Read more

Fixed-Rate Capital Securities

Fixed-rate capital securities are fixed income securities that have features of both corporate bonds and preferred stock. Similar to a hybrid security, fixed-rate capital securities have features of both preferred stock and corporate bonds. Read more

Forward Dividend Yield

A forward dividend yield is a stock's annualized dividend based on its latest declared dividend payment. Forward dividend yields can be calculated in a number of ways, and depending on which way they are calculated, various sources will often list different yields for the exact same security. Read more

Gordon Growth Model

The Gordon Growth Model (GGM) is a version of the dividend discount model (DDM).It is used to calculate the intrinsic value of a stock based on the net present value (NPV) of its future dividends. Read more

Gross Interest

Gross interest is the amount of interest an account or investment earns before deducting taxes, fees or other charges.It is expressed as a percentage. Read more

Guaranteed Death Benefit

A guaranteed death benefit is a portion of an annuity that allows the investor's beneficiaries to receive a minimum amount of death benefits.  Let's say Jane Doe bought an annuity for $500,000 that has a guaranteed death benefit. Read more

Guaranteed Investment Contract (GIC)

A guaranteed investment contract (GIC) is an agreement between a contract purchaser and an insurance company whereby the insurance company provides a guaranteed rate of return in exchange for keeping a deposit for a fixed period of time.  Let's assume Company XYZ buys a GIC from the ABC Insurance Company on behalf of the employees enrolled in the Company XYZ pension plan.ABC Insurance Company guarantees the return of Company XYZ's original investment and pays either a fixed or variable rate of interest until the end of the contract. Read more

Income Funds

Income funds are mutual funds, ETFs or any other type of fund that seek to generate an income stream for shareholders by investing in securities that offer dividends or interest payments.The funds can hold bonds, preferred stock, common stock or even real estate investment trusts (REITs). Read more

Index Annuity

An index annuity is an annuity that pays a rate of return corresponding to a particular index, such as the S&P 500 Index. An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank or other financial institution that in return agrees to give the investor either a higher lump-sum payment in the future or a series of guaranteed payments. Read more

Indicated Yield

Indicated yield is the dividend yield on a stock if the most recent dividend is annualized. The formula for indicated yield is:  Indicated Yield = (Most Recent Dividend x Number of Dividend Payments Per year) / Stock Price For example, assume a stock's most recent quarterly dividend was $2 and the stock currently trades at $100. Read more

JAJO

JAJO stands for January, April, July, and October -- the four months in which companies are likely to declare dividends.A dividend declaration is an announcement of an upcoming dividend payment, usually via press release a few weeks before the dividend is paid. Read more

Kiddie Tax

Kiddie tax is the colloquial term for certain taxes owed on interest, dividends or other investment income earned by children under 17 years old. Let's say John Doe has a son, Jake Doe, who is 16 years old. Read more

Managed Distribution Policy

A managed distribution policy is an issuer's commitment to make a fixed periodic dividend payment.This means investors can buy shares of a security with the confidence that they will receive a reliable distribution instead of a constantly changing payment. Read more

Mortgage-Backed Securities (MBS)

Mortgage-backed securities (MBS) are securities that represent an interest in a pool of mortgage loans. To understand how MBS work, it's important to understand how they're created. Read more

Ordinary Dividend

An ordinary dividend is a dividend that is not eligible for capital gains tax. For example, let’s assume that John Doe holds 10,000 shares of Company XYZ stock, which pays $0.20 per year in dividends. Read more

Payout Ratio

The payout ratio, also known as the dividend payout ratio, is the percentage of a company's earnings paid out to investors as cash dividends. At the end of a specified period, companies will sometimes pay out dividends for every share owned. Read more

Qualified Dividend

A qualified dividend is a dividend eligible to incur capital gains tax. For example, let's assume that John owns 10,000 shares of Company XYZ stock, which pays $0.20 per year in dividends. Read more

Rebate

In stock trading, a rebate occurs when a short seller has taken a short position in a stock that then pays a dividend before the settlement date.The rebate is the dividend that the short seller is required to pay to the owner of the stock.    In short selling, the trader borrows the stock and then sells it, expecting to buy it back and return it to the lender at the settlement date. Read more

Special Dividend

A special dividend, also known as an extra dividend, is a one-time distribution of corporate earnings to company shareholders, which usually stem from exceptional profits during a given quarter or period. Special dividends are typically disbursed in cash and tend to be a greater amount than the company’s standard dividend payment. Read more

Stock Dividend

Dividends are a distribution of corporate earnings to shareholders and usually take place in one of two forms -- cash or stock.A stock dividend is the latter of these two kinds of dividends. Read more

XD

XD is a symbol to indicate that a security is trading ex-dividend. The ex-dividend date is the day on which all shares bought and sold no longer come attached with the right to receive the most recently declared dividend. Read more

Yield on Cost (YOC)

Yield on cost (YOC) is an investment's annual dividend divided by the original purchase price of the investment. To calculate yield on cost, divide the annual dividend by the per-share price you initially paid. Read more