High Dividend Stocks - Key Definitions for Dividend Investors

DIVIDEND

 
 distribution of earnings to shareholders, prorated by class of security and paid in the form of money, stock, scrip, or, rarely company products or property.  The amount is decided by the board of directors and is usually paid quarterly.  Dividends must be declared as income in the year they are received.

     Mutual fund dividends are paid out of income, usually on a quarterly basis from the fund's investments.  The tax on such dividends depends on whether the distributions resulted from capital gains, interest income, or dividends received by the fund

DIVIDEND YIELD  

annual percentage of return earned by an investor on a common or preferred stock.  The yield is determined by dividing the amount of the annual dividend per share by the current market price per share of the stock.  For example, a stock paying a $1 dividend per year that sells for $10 per share has a 10% dividend yield.  The dividend yields of stocks are listed in the stock tables of most daily newspapers [and financial websites]

DIVIDEND PAYOUT RATIO  

percentage of earnings paid to shareholders in cash.  

EX-DIVIDEND  interval between the announcement and the payment of the next dividend.  An investor who buys shares during that interval is not entitled to the dividend.  Typically, a stock's price moves up by the dollar amount of the dividend as the ex-dividend date approaches, then falls by the amount of the dividend after that date.  A stock that has gone ex-dividend is marked with an 

x 
in newspaper listings.

EX-DIVIDEND DATE  date on which a stock goes EX-DIVIDEND, typically about three weeks before the dividend is paid to shareholders of record.  Shares listed on the New York Stock Exchange go ex-dividend four business days before the RECORD DATE.  This NYSE rule is generally followed by other exchanges.

RECORD DATE  see DATE OF RECORD; EX-DIVIDEND DATE; PAYMENT DATE.

DATE OF RECORD  date on which a shareholder must officially own shares in order to be entitled to a dividend.  For example, the board of directors of a corporation might declare a dividend on November 1 payable on December 1 to stockholders of record on November 15.  After the date of record the stock is said to be EX-DIVIDEND.  Also called record date.

PAYMENT DATE  date on which a declared stock dividend or a bond interest payment is scheduled to be paid.

PAYOUT RATIO  percentage of a firm's profits that is paid out to shareholders in the form of dividends.  Young, fast-growing companies reinvest most of their earnings in their business and usually do not pay dividends.  Regulated electric, gas, and telephone utility companies have historically paid out of larger proportions of their highly dependable earnings in dividends than have other industrial corporations.  Since these utilities are limited to a specified return on assets and are thus not able to generate from internal operations the cash flow needed for expansion, they pay large dividend to keep their stock attractive to investors desiring yield and are able to finance growth through new securities offering.  See also RETENTION RATE.

RETENTION RATE  percentage of after-tax profits credited to retained earnings.  It is the opposite of the DIVIDEND PAYOUT RATIO.

Source: Barron's Dictionary of Finance and Investment Terms fifth edition

Click here to purchase this book from Amazon.com