Dividend Investing Glossary on DividendCalc.org

Blue-Chip Stock: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

The phrase comes from the highest-value chips in poker. Blue-chip companies are household names that have survived many economic cycles and have a track record of paying dividends.

Example

Large consumer, healthcare, industrial and financial companies that have paid dividends for decades are typically described as blue chips.

Why it matters

Blue chips tend to be more stable than small or young companies, which is why income investors often start there.

CAGR: Compound Annual Growth Rate Explained

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Real returns jump around from year to year. CAGR smooths them into a single average yearly rate.

CAGR = (ending value ÷ starting value) ^ (1 ÷ years) − 1

Example

$10,000 grows to $16,000 in 5 years. The CAGR is about 9.9% a year.

Why it matters

It lets you compare investments held for different lengths of time on one scale. You can use it for portfolio value, revenue, or a dividend’s growth rate.

Compound Interest: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

With simple interest you earn only on your starting amount. With compound interest you also earn on past earnings. The usual formula is:

Future value = principal × (1 + rate ÷ n) ^ (n × years)

where n is how many times a year the return is added.

Example

$1,000 growing at 7% a year, compounded annually, becomes about $1,967 after 10 years. Simple interest would give only $1,700.

Declaration Date: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Before a dividend is paid, the board of directors must approve it. The day they announce it is the declaration date. The announcement sets the amount per share and the other key dates.

Example

On February 5, a company announces a quarterly dividend of $0.75 per share, payable on March 20 to shareholders of record on March 6.

Why it matters

Once declared, a dividend becomes a legal obligation for the company. Until then, it is only a pattern of past payments.

Diversification: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

It is the idea behind “don’t put all your eggs in one basket”. Owning companies in different industries, sizes and countries means a problem in one area has a smaller effect on the total.

Example

If a portfolio holds one stock and its dividend is cut, income can fall sharply. If it holds 20 companies across different sectors, a single cut matters much less.

Why it matters

For dividend investors it also protects the income stream. Many high-yield stocks sit in the same few sectors, so a portfolio that looks varied can still be concentrated.

Dividend Aristocrat: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

The label comes from an S&P index. To qualify, a company must be in the S&P 500, meet size and liquidity rules and have raised its dividend for 25 or more years in a row.

Example

A company that has raised its dividend every year since the late 1990s is a long-running member. If it freezes or cuts the dividend, it is removed from the list.

Why it matters

A long streak points to durable profits and a commitment to shareholders. It is a useful starting point for research, not a guarantee.

Dividend Coverage Ratio: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Dividend coverage = earnings per share ÷ dividend per share

It is the opposite view of the payout ratio.

Example

A company earns $3 per share and pays a $2 dividend. Coverage is 3 ÷ 2 = 1.5×. Its payout ratio is about 67%.

Why it matters

A coverage ratio near 1× means almost all profit goes to the dividend, leaving little cushion. Many investors prefer a comfortable margin, though what is reasonable depends on the industry.

Dividend Cut: Definition and What Happens

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

When a company lowers or suspends its dividend, shareholders receive less cash than before. Companies cut when profits or cash flow fall, debt becomes heavy or the business needs the money for something else.

Example

A company that paid $1.00 a quarter cuts it to $0.50. A holder of 200 shares goes from $200 to $100 per quarter.

Why it matters

The share price often drops sharply on a cut, because the market sees it as a sign of trouble. You lose both income and, often, capital.

Dividend Growth Rate: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

It measures the average yearly increase in the dividend. A common way to calculate it is as a compound annual rate:

Growth rate = (latest dividend ÷ older dividend) ^ (1 ÷ years) − 1

Example

A company paid $1.00 per share ten years ago and pays $1.61 today. That is about 4.9% a year.

Why it matters

Your income grows only if the dividend grows. A moderate yield with strong growth can end up paying you more than a high yield that never rises. See yield on cost.

Dividend King: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Dividend Kings take the idea of the Dividend Aristocrats further: 50 or more years of annual increases. The list is informal and kept by independent researchers, not by an official index.

Example

A consumer-goods or healthcare company that has raised its dividend every year since the 1970s fits the description.

Why it matters

Fifty years means the company has raised its dividend through several recessions and market crashes. See our full page on Dividend Kings.

Dividend Yield: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Dividend yield compares the cash a stock pays you each year with what the stock costs today.

Dividend yield = annual dividend per share ÷ share price × 100

Example

A stock pays $2 a year in dividends and costs $50. The yield is $2 ÷ $50 = 4%. If the price falls to $40 and the dividend stays at $2, the yield rises to 5%.

Why it matters

Yield lets you compare the income from different investments on equal terms. But the yield moves whenever the price moves, so it is a snapshot, not a promise.

Dividend: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

When a company earns a profit, it can keep the money to grow the business or pay part of it to its owners. The part it pays out is a dividend. If you own shares, you are an owner, so you receive a payment for each share you hold.

Example

A company pays $0.50 per share every quarter and you own 100 shares. You receive $50 each quarter, or $200 a year.

DRIP: Dividend Reinvestment Plan Explained

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

With a dividend reinvestment plan (DRIP), each dividend buys more shares of the same stock or fund, often including fractions of a share. More shares mean larger dividends next time, which buy even more shares.

Example

You own 100 shares priced at $50 and receive a $100 dividend. Instead of cash, you get 2 more shares. Next time you are paid on 102 shares.

Why it matters

Reinvesting is how dividends compound. Over decades the extra shares can make a large difference, especially when the company also raises its dividend.

ETF: Exchange-Traded Fund Explained

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Instead of buying many stocks one by one, you buy one share of an ETF that holds them all. Most ETFs track an index, such as the S&P 500, but some hold bonds, gold or other assets.

Example

One share of an S&P 500 ETF gives you a small slice of roughly 500 large US companies. When those companies pay dividends, the fund collects them and normally passes them on to you.

Ex-Dividend Date: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Companies set a cut-off for who gets the next dividend. The ex-dividend date (or ex-date) is the first trading day on which a new buyer will not receive it. To get the dividend, you need to buy the shares before the ex-date.

Example

A company announces a $0.50 dividend with an ex-dividend date of March 14. If you buy on March 13, you receive it. If you buy on March 14 or later, the seller keeps it.

Expense Ratio: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Every fund has running costs. The expense ratio is that cost expressed as a yearly percentage of your investment. It is taken from the fund’s assets, so you never see a separate bill.

Example

A fund with a 0.50% expense ratio costs $50 a year on $10,000. A fund with a 0.10% ratio costs $10.

Why it matters

Small differences compound over decades. A lower fee leaves more of the return with you. Use the fee impact calculator to see the effect.

Free Cash Flow: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Free cash flow (FCF) = cash from operations − capital expenditures

Profit is an accounting number. Cash is what pays the dividend.

Example

A company generates $500 million from operations and spends $200 million on equipment. Its free cash flow is $300 million. If it pays $250 million in dividends, the dividend is covered, but with little room to spare.

Why it matters

A dividend that is not covered by free cash flow has to be paid from debt or savings, which cannot continue for long.

Index Fund: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

An index fund holds the same investments as an index, in the same proportions. There is no manager picking stocks, which keeps costs low. An index fund can be a mutual fund or an ETF.

Example

An S&P 500 index fund holds the roughly 500 companies of the index. If the index rises 10%, the fund aims to rise about 10% before fees.

Why it matters

Low costs and broad diversification are the main attractions. Dividends from the companies in the index are collected by the fund and paid to you.

Market Capitalization: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Market cap = share price × number of shares outstanding

It shows how big the market thinks a company is.

Example

A company with 100 million shares trading at $50 has a market cap of $5 billion.

Why it matters

Investors group companies into large, mid and small caps. Large caps are usually more stable, while small caps can grow faster and be riskier. The exact boundaries vary by index provider.

Passive Income: Definition and Examples

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Passive income arrives without you trading your time for it every hour. Dividends are a classic example: you own shares, and the company pays you.

Example

A portfolio of $250,000 with an average yield of 4% pays about $10,000 a year, or roughly $833 a month, before taxes and fees.

Why it matters

Many people use dividends to cover part of their living costs, or to build toward financial independence.

Payment Date: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

The payment date (or pay date) is when the cash lands in your account. It comes after the declaration date, the ex-dividend date and the record date.

Example

A company declares a $0.60 dividend. The ex-dividend date is March 14 and the payment date is April 2. If you owned the shares before March 14, the money arrives on April 2.

Why it matters

If you plan your income month by month, the payment date matters more than the other dates, because it decides when you can spend or reinvest the money.

Payout Ratio: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

The payout ratio shows how much of each dollar of profit goes to shareholders.

Payout ratio = dividends per share ÷ earnings per share × 100

Example

A company earns $4 per share and pays a $2 dividend. The payout ratio is 50%: half of its profit is paid out and half is kept for the business.

Why it matters

A very high ratio leaves little cushion. If profits dip, the dividend may have to be cut. A very low ratio can mean room to grow the dividend. What counts as “high” depends on the industry: REITs and utilities usually pay out more than technology companies.

Qualified Dividend: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

In the United States, some dividends are taxed at the same lower rates as long-term capital gains. These are qualified dividends. To qualify, the dividend generally has to come from a US company or a qualifying foreign company, and you must have held the shares for a minimum period around the ex-dividend date.

Example

Two investors receive $1,000 in dividends. If one is qualified and the other is not, the qualified one is usually taxed at a lower rate.

Record Date: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

On the record date, the company looks at its books and pays the dividend to the shareholders listed that day. It sits between the declaration and the payment.

Example

A company declares a dividend on May 1 with a record date of May 20 and a payment date of June 5. Investors who are on the books on May 20 receive the payment on June 5.

Why it matters

Trades take time to settle, so being “on the books” depends on when you bought, which is why the ex-dividend date exists. In the US, the ex-dividend date and the record date are normally the same day today.

REIT: Real Estate Investment Trust Explained

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

A REIT lets you own part of properties such as apartments, offices, warehouses or shopping centres without buying a building yourself. In the United States, a REIT generally has to distribute at least 90% of its taxable income to shareholders, which is why REITs often have high dividend yields.

Example

A REIT collects rent from its properties, pays its costs and passes most of the income to shareholders each month or quarter.

Rule of 72: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Years to double ≈ 72 ÷ annual return (%)

Example

At 8% a year, money doubles in about 72 ÷ 8 = 9 years. At 4% it takes about 18 years.

Why it matters

It is a quick mental tool for seeing how much difference a few percentage points make over time. It also works for inflation: at 3% inflation, prices double in about 24 years.

Limits

It is an approximation and works best for rates between about 6% and 10%. For exact figures, use a calculator.

Share Buyback: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Besides dividends, a company can return cash by buying back its own shares. Fewer shares remain, so each one represents a bigger slice of the company and its profit.

Example

A company with 100 million shares buys back 5 million. Everyone who still owns shares now owns a slightly larger part of the business, and earnings per share rise even if total profit does not.

Why it matters

Buybacks are more flexible than dividends: companies can pause them without the stigma of a dividend cut. Many large companies, such as Apple, return more cash through buybacks than dividends.

Special Dividend: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Sometimes a company has more cash than it needs, for example after selling a business or a very strong year, and pays some of it out as a special dividend. Unlike a regular dividend, it is not expected to repeat.

Example

A company pays its usual $0.80 quarterly dividend and also announces a one-time $5 special dividend. A holder of 100 shares receives an extra $500 once.

Total Return: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Price change alone leaves out the income you collected on the way. Total return adds the two together.

Total return = (price change + income received) ÷ starting price × 100

Example

You buy a share at $100. A year later it is worth $108 and it paid $3 in dividends. Your total return is ($8 + $3) ÷ $100 = 11%.

Why it matters

Dividend stocks can look slow if you only watch the price. Total return shows the real picture, especially when dividends are reinvested.

Withholding Tax on Dividends: Definition

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

When a company pays a dividend to a foreign investor, the company’s country can deduct tax before the money reaches you. This is withholding tax.

Example

A US company pays you a $100 dividend. Under the default rules for non-US investors, $30 could be withheld. Tax treaties between countries often reduce the rate, commonly to 15%, and you usually need to give your broker a form such as W-8BEN.

Yield on Cost: Definition and Example

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Yield on cost = current annual dividend per share ÷ your original purchase price × 100

It shows how your personal income has grown compared with what you invested.

Example

You bought a stock at $50 when it paid $1.50 a year (3%). Ten years later it pays $3.00 a year. Your yield on cost is $3.00 ÷ $50 = 6%, even if the stock’s current yield for new buyers is only 3%.

Yield Trap: Definition and How to Spot One

Wed, 07 Oct 2026 00:00:00 +0000

In plain English

Yield rises when the price falls. A company in trouble can therefore show a high yield, which attracts investors just before the dividend is cut. That is the trap.

Example

A stock pays $2 a year and trades at $50, a 4% yield. Bad news pushes the price to $25 and the yield jumps to 8%. It looks like a bargain, but the market is signalling that the dividend may not last.