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DIVIDEND
Average dividend yield
• Combined with price appreciation, the average dividend yield (if any) can show a
potential total return from a security investment. The formula for the average
dividend yield is:
(EPS *Average Payout) / current price
where EPS = Estimated Future High EPS / (1 + EPS Growth) 2.5
Companies that pay a dividend will generally increase the dividend as EPS grow.
Share price growth will usually follow the dividend increases, and thus keep dividend
yield at a constant percentage.
Cash dividend
Common dividends
Cum dividend
• With dividend.
• The date, set by the firm's directors, on which every person whose name is
recorded as a shareholder will, at a specified future time, receive a declared
dividend.
• Abbreviated DDM. A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.
Dividend
• Dividends may be paid in the form of cash or stock. Generally a growth company
pays out no more than 50% of its earnings in dividends to shareholders. When a
company has been growing rapidly over several years, it is likely to pay a modest
dividend so that it can reinvest earnings in the business. In this way it will build value
over the long term.
Dividend clawback
Dividend clientele
• A group of shareholders who prefer that the firm follow a particular dividend policy.
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Dividend date
• Is sometimes used to refer to the Date of Record for entitlement to the dividend or
the actual Payment Date.
• Abbreviated DDM. A model for valuing the common stock of a company, based on
the present value of the expected cash flows.
• A theory put forth by Miller and Modigliani that, in a perfect world, the value of a
firm is unaffected by the distribution of dividends and is determined solely by the
earning power and risk of its assets.
Dividend limitation
• A bond covenant that restricts in some way the firm's ability to pay cash dividends.
Dividend or dividends
• Is computed by dividing the dividends paid on common shares by the net income
which would be available for common stockholders.
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• Indicates the percentage of each dollar earned that is distributed to the owners in
Dividend policy
• An established guide for the firm to determine the amount of money it will pay as
dividends.
Dividend rate
• The fixed or floating rate paid on preferred stock based on par value.
Dividend reinvestment
holder.
• Abbreviated DRIP or DRP. Plan offered by many corporations for the reinvestment
of cash dividends by purchasing additional shares or fractional shares on the
dividend payment date, occasionally at a discount from market price. Many DRIPs
also allow the investment of additional cash from the shareholder, known as an
Optional Cash Payment or Optional Cash Purchase (OCP). The DRIP is usually
administered by the company without charges or only nominal fees to the
participants, and many allow additional purchases of as little as $10.
• The theory, attributed to Gordon and Lintner, that shareholders prefer current
dividends and that there is a direct relationship between a firm's dividend policy and
its market value.
Dividend rights
• Abbreviated DVM. The value of common shares is dependent upon the sum of the
present value of the dividends received over an infinite time horizon.
Dividend yield
• Is a term that can have several different meanings. It can refer to an annualized
(cash) dividend rate of return. This is computed by dividing the cash dividend by the
price per share at the time of purchase. If the stock were trading at 100 and the
dividends equaled $2.80, then the yield would be 2.80 percent. Also, the term is
used on the assumption that the current trading price is the implied purchase price.
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• Indicated yield represents return on a share of a mutual fund held over the past
12months. Assumes fund was purchased 1 year ago. Reflects effect of sales
charges (at current rates), but not redemption charges.
Dividends
• Periodic distributions of earnings to the owners of stock in a firm paid only at the
discretion of the board of directors.
• Dividends paid for the past 12 months divided by the number of common shares
outstanding, as reported by a company. The number of shares often is determined
by a weighted average of shares outstanding over the reporting term.
Ex dividend
• This literally means without dividend. The buyer of shares when they are quoted
ex-dividend is not entitled to receive a declared dividend.
• Period beginning two business days prior to the date of record during which a stock
will be sold without the right to receive the current dividend.
• Refers to a transaction which the new purchaser of a stock is not entitled to the
recently declared dividend. This occurs because the new purchaser did not own the
security on the record date.
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Ex dividend date
• Also known as the Ex-Date. The first date on which a security is traded without
entitling the buyer to receive distributions previously declared. This is the date after
which the seller, and not the buyer, of a stock will be entitled to a recently
announced dividend. It is usually several business days before the record date, and
is indicated in newspaper listings with an x.
• The first day of trading when the seller, rather than the buyer, of a stock will be
entitled to the most recently announced dividend payment. This date set by the
Extra dividend
• An additional dividend optionally paid by the firm if earnings are higher than normal
in a given period.
Homemade dividend
• Sale of some shares of stock to get cash that would be similar to receiving a cash
dividend.
Indicated dividend
• The total dividends that would be paid on a share of stock in the next twelve
months, provided that each dividend is the same amount as the latest payment.
• Total amount of dividends that would be paid on a share of stock over the next 12
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months if each dividend were the same amount as the most recent dividend. Usually
represent by the letter e in stock tables.
Intercorporate dividends
Liquidating dividend
• Payment by a firm to its owners from capital rather than from earnings.
Ordinary dividend
Preferred dividends
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• These dividends are paid at a specified rate to shareholders who have purchased
preferred shares. Should the company be in financial difficulty, the preferred
shareholders would receive their due before the Common Shareholders. Preferred
dividends are used as part of the business model method of predicting EPS 5 years
into the future.
• A company with a large dividend yield will have substantial price support. A large
dividend yield is anything larger than the bank interest rate.
• An approach that suggests that a firm pay dividends if and only if acceptable
investment opportunities for those funds are currently unavailable.
• A theory that the dividend paid by a firm should be the amount left over after all
acceptable investment opportunities have been undertaken.
• The argument that dividend changes are important signals to investors about
changes in management's expectation about future earnings.
• A stock dividend that represents less than 20 to 25 percent of the common stock
outstanding at the time the dividend is declared.
Special dividend
Stock dividend
• Payment of a corporate dividend in the form of stock rather than cash. The stock
dividend may be additional shares in the company, or it may be shares in a
subsidiary being spun off to shareholders. Stock dividends are often used to
• Occurs when there has been a short sale. The lender of the security is entitled to a
substitute dividend or cash payment. The party who buys the actual security is
entitled to the actual dividend as well as voting rights, if any.
• A policy under which the firm attempts to pay out a certain percentage of earnings
as a stated dollar dividend, which it adjusts toward a target payout as proven
earnings increases occur.
• The view that shareholders prefer capital gains over dividends, and hence low
payout ratios, because capital gains are effectively taxed at lower rates than
dividends.
With dividend