Dividend Investing Glossary

B

Blue-Chip Stock: A blue-chip stock is a share in a large, well-established, financially strong company with a long record of stable earnings and, often, dividends.

CAGR: CAGR, or compound annual growth rate, is the steady yearly rate at which an investment would have to grow to go from its starting to its ending value.
Compound Interest: Compound interest means earning returns on both your original money and the returns it has already earned, so growth speeds up over time.

Declaration Date: The declaration date is the day a company's board announces a dividend, including its amount, record date and payment date.
Diversification: Diversification means spreading your money across different investments so that one bad result does not hurt your whole portfolio.
Dividend: A dividend is a share of a company's profit that it pays to its shareholders, usually in cash and often every three months.
Dividend Aristocrat: A Dividend Aristocrat is an S&P 500 company that has increased its dividend every year for at least 25 consecutive years.
Dividend Coverage Ratio: The dividend coverage ratio shows how many times a company's earnings (or free cash flow) could pay its dividend. Higher means safer.
Dividend Cut: A dividend cut is a company's decision to reduce the amount of its dividend, or to stop paying it altogether.
Dividend Growth Rate: The dividend growth rate is how fast a company's dividend per share increases, usually shown as an average percentage per year.
Dividend King: A Dividend King is a company that has raised its dividend every year for at least 50 consecutive years.
Dividend Yield: Dividend yield is the annual dividend per share divided by the share price, shown as a percentage: the income you get for each dollar invested.
DRIP: A DRIP, or dividend reinvestment plan, automatically uses your dividends to buy more shares instead of paying them out as cash.

ETF: An ETF, or exchange-traded fund, is a fund that holds a basket of investments and trades on a stock exchange like a single share.
Ex-Dividend Date: The ex-dividend date is the first day a stock trades without the right to its next dividend. You must own the shares before this date to receive the payment.
Expense Ratio: The expense ratio is the yearly fee a fund charges, shown as a percentage of the money you have invested in it.

Free Cash Flow: Free cash flow is the cash a company has left after operations and investments: the money available for dividends, debt repayment and buybacks.

Index Fund: An index fund is a fund that simply copies a market index, such as the S&P 500, instead of trying to pick winning investments.

Market Capitalization: Market capitalization is the total value of a company's shares: the share price multiplied by the number of shares outstanding.

Passive Income: Passive income is money you earn with little ongoing effort, such as dividends, interest or rent, after you have put in the capital or the initial work.
Payment Date: The payment date is the day a company actually pays out a declared dividend, usually a few weeks after the record date.
Payout Ratio: The payout ratio is the share of a company's profit that it pays out as dividends. A lower ratio usually leaves more room to keep or raise the dividend.

Qualified Dividend: A qualified dividend is a US tax category for dividends that meet certain rules and are taxed at lower rates than ordinary income.

Record Date: The record date is the day a company checks its list of shareholders to decide who receives the next dividend.
REIT: A REIT, or real estate investment trust, is a company that owns income-producing property and pays out most of its taxable income to shareholders as dividends.
Rule of 72: The Rule of 72 is a shortcut for estimating how many years it takes an investment to double: divide 72 by the annual rate of return.

Share Buyback: A share buyback is when a company repurchases its own shares, shrinking the share count and raising each remaining shareholder's ownership share.
Special Dividend: A special dividend is a one-time extra payment to shareholders, separate from a company's regular dividend.

Total Return: Total return is the full gain on an investment: the change in price plus all dividends or interest received, shown as a percentage of the starting amount.

Withholding Tax: Withholding tax is tax taken from a dividend at the source before you receive it, most often when a company pays investors in another country.

Yield on Cost: Yield on cost is the annual dividend you receive today divided by the price you originally paid for the shares.
Yield Trap: A yield trap is a stock whose dividend yield looks attractive only because its share price has fallen, and whose dividend is likely to be cut.