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.
A bank deposit agreement, also called a Bank Investment Contract (BIC), is an agreement between a bank and an investor where the bank provides a guaranteed rate of return in exchange for keeping a deposit for a fixed amount of time (usually several months to several years). Bank deposit agreements are similar to guaranteed investment contracts (GICs) except that they are issued by banks rather than insurance companies.
A bank investment contract (BIC), also sometimes called a Bank Deposit Agreement, is an agreement between a bank and an investor whereby the bank provides a guaranteed rate of return in exchange for keeping a deposit for a fixed period of time (several months to several years). BICs are similar to guaranteed investment contracts (GICs) except that they are issued by banks rather than insurance companies.
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.
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.
A callable certificate of deposit (callable CD) is a time deposit with a bank or financial institution.But unlike other CDs, callable CDs can be redeemed by the issuer before the maturity date.
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.
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.
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.
A cumulative dividend is a dividend, usually on preferred shares, that must be paid before any other dividends on any of the issuer's other securities.Preferred stock that does not carry a cumulative dividend is referred to as "straight preferred." Let's assume Company XYZ issues some preferred stock with a $1-per-share cumulative quarterly dividend.
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.
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.
A dedicated portfolio is a passively managed portfolio whose cash flows are designed to match the cash flows needed to fulfill a future obligation. A dedicated portfolio is also referred to as a structured portfolio.
Dividends are payments from corporate earnings to company shareholders.Dividends are one way for you to receive a return from owned shares.
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.
The term "dividend aristocrats" is used to describe Standard & Poor's (S&P) 500® Index companies that have consistently improved their dividend rates 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A fixed annuity offers a fixed rate of return, and all its future payments are equal amounts. Assume you'd like to invest in a vehicle that will provide you with guaranteed monthly payments of $1,167 every month for as long as you live after you retire.
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.
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.
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.
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.
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.
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.
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.
An illegal dividend is a dividend declared in violation of a company's charter or state laws. For example, let's say Company XYZ has $20,000,000 of retained earnings.
Immediate payment annuities (also called single-premium immediate annuities or SPIAs) are annuities that begin making payments to the owner immediately (within one year of purchase). 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.
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).
An income stock is a stock in which a taxable payment is declared by a company's board of directors and is given to the shareholders from the current or retained earnings that occur, usually on a quarterly basis. For example, let's say that Company XYZ generated $40 million of cash this quarter.
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.
An indexed 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.
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.
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.
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.
Net interest margin securities (NIMS) provide investors with cash flows from securitized mortgages.The first NIMS came into the marketplace in the mid-1990s.
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.
Pasternak's normalized net asset value (NNAV) allows investors to compare master limited partnership (MLP) funds with each other and with non-MLP closed-end funds. Pasternak's NNAV was created by Carla Pasternak, an income-investing expert at StreetAuthority.com. Pasternak's NNAV is calculated according to the following formula: Pasternak's NNAV = Net Asset Value + Deferred Tax Liability Investing in MLPs can be incredibly complicated, especially around tax time.
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.
A qualified pre-retirement survivor annuity (QPSA) is a company-sponsored death benefit that provides the employee's surviving spouse with an annuity payment should the employee die before receiving retirement benefits. For example, let's assume that John works at Company XYZ, which has a pension plan.
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.
The record date is the date used to determine the holders of a security who are entitled to receive a dividend or distribution. When a company is preparing to distribute dividends to shareholders, it uses a list of shareholders who are holding the security on a particular date.
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.
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.
A variable annuity is a contract sold by an insurance company.The contract provides the holder with future payments based on the performance of the contract's underlying securities.
A variable-rate certificate of deposit (CD) is a CD with an interest rate that can change. A CD is an investment whereby the investor deposits a certain amount of money with a bank or credit union, which agrees to pay interest on that deposit for the duration of the deposit.
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.