Dividend Glossary
38 dividend investing terms, each defined in a few plain sentences. Every term has its own link (for example #payout-ratio) you can share or cite.
- Annual dividend
- The total regular dividend a company pays per share over a year. For a quarterly payer it is usually the latest quarterly amount multiplied by four (the forward annual dividend). Special dividends are left out. Dividend calculator →
- Cash-flow payout ratio
- Dividends paid divided by free cash flow. It shows whether the cash a business actually generates covers its dividend, which matters more than reported earnings for companies with large non-cash charges. Below about 70% is comfortable for most businesses.
- Declaration date
- The day a company's board announces a dividend, along with its amount, record date and payment date. Once declared, a dividend is a legal obligation of the company. The four dividend dates →
- Dividend
- A cash payment a company makes to its shareholders out of its profits, usually on a fixed schedule (quarterly in the U.S.). It is quoted per share: a $0.50 quarterly dividend pays $50 on 100 shares.
- Dividend Aristocrat
- A company in the S&P 500 that has raised its dividend every year for at least 25 consecutive years. The official list is maintained by S&P Dow Jones Indices; SmarterDividends' list counts streaks from our own payment records and includes companies outside the S&P 500. Dividend Aristocrats list →
- Dividend capture
- Buying a stock just before its ex-dividend date and selling soon after to collect the dividend. It rarely works: the price typically falls by about the dividend on the ex-date, and trading costs and taxes eat the rest.
- Dividend cut
- A reduction in a company's regular per-share dividend. Cuts usually follow falling earnings or cash flow, rising debt or a payout ratio that was too high, and the share price often drops on the news. SmarterDividends logs every cut among U.S.-listed stocks with the safety grade the company held beforehand. Dividend cuts this month →
- Dividend discount model (DDM)
- A valuation method that values a stock as the present value of all its future dividends. The simplest form, the Gordon growth model, is next year's dividend divided by the discount rate minus the long-run dividend growth rate. How to value a dividend stock →
- Dividend ETF
- An exchange-traded fund that holds a basket of dividend-paying stocks, chosen by yield, dividend growth or quality, and passes the dividends through to its holders, usually monthly or quarterly.
- Dividend growth rate
- How fast a company's dividend per share has risen, usually given as a compound annual rate over five or ten years. A 7% growth rate roughly doubles the dividend every ten years.
- Dividend growth streak
- The number of consecutive years in which a company raised its regular dividend. SmarterDividends counts completed calendar years in which the annualized regular rate rose; a flat year ends the streak.
- Dividend history
- The record of every dividend a company has paid: amounts, ex-dividend dates and pay dates. It shows how reliably the dividend has grown and whether it has ever been cut. Dividend history lookup →
- Dividend initiation
- A company's first regular dividend, or its first in many years. Initiations often come from maturing growth companies with steady cash flow and are logged in our news feed. New dividends →
- Dividend King
- A company that has raised its dividend for at least 50 consecutive years. Unlike the Aristocrats there is no official index, so lists differ depending on how each source counts. Dividend Kings list →
- Dividend reinvestment (DRIP)
- Using each dividend to buy more shares of the same stock or fund automatically, usually commission-free and in fractional shares. Over long periods reinvested dividends account for a large share of total stock-market returns. DRIP calculator →
- Dividend Safety Grade
- SmarterDividends' A–F rating of how secure a company's dividend is, from a 0–100 score built from payout coverage, free cash flow, balance-sheet strength, dividend history and yield versus its own history. A is 80–100; F is 35 or below. Safety grade track record →
- Dividend suspension
- When a company stops paying its dividend altogether, usually during financial stress. It is the most severe form of dividend cut.
- Dividend yield
- The annual dividend divided by the share price, as a percentage. A $100 stock paying $3 a year yields 3%. Because the price is in the denominator, yield rises when the price falls, so a very high yield can signal that the market expects a cut. What is a good dividend yield? →
- Ex-dividend date
- The first trading day a stock trades without its next dividend. To receive the dividend you must buy by the close of the trading day before the ex-date; you can sell on the ex-date and still be paid. Under T+1 settlement the ex-date and record date are normally the same business day. Ex-dividend date calculator →
- Fair value
- An estimate of what a stock is worth based on its fundamentals rather than its market price. SmarterDividends blends up to three methods: a discounted cash flow, a dividend discount model and Graham's earnings multiple. Undervalued dividend stocks →
- Forward dividend yield
- The dividend yield based on the next twelve months of expected dividends, usually the latest regular payment annualized. It reacts to a raise or cut as soon as it is declared.
- Free cash flow
- Cash from operations minus capital expenditure: the money left over that can fund dividends, buybacks and debt repayment. A dividend that consistently exceeds free cash flow has to be funded with borrowing or asset sales.
- Funds from operations (FFO)
- The standard earnings measure for REITs: net income with depreciation and gains or losses on property sales added back. Because depreciation is large and non-cash for property owners, REIT dividend coverage is judged on FFO (or adjusted FFO) rather than on earnings per share. Payout ratios by sector →
- High-yield stock
- A stock whose dividend yield is well above the market's, commonly 4% or more. High yields are often found in REITs, utilities, pipelines, tobacco and BDCs, and can mean either cheap shares or a dividend at risk.
- Monthly dividend stock
- A stock or fund that pays a dividend every month instead of every quarter. Common among REITs, BDCs and income ETFs; the annual yield isn't higher just because payments are more frequent. Monthly dividend stocks →
- Ordinary (non-qualified) dividend
- A dividend taxed in the U.S. at your ordinary income tax rate instead of the lower qualified rate. Most REIT distributions and dividends on shares held too briefly are ordinary. Qualified vs ordinary dividends →
- Payment date (pay date)
- The day a declared dividend is actually paid into shareholders' brokerage accounts, typically a few days to a few weeks after the ex-dividend date.
- Payout ratio
- The share of a company's earnings paid out as dividends: dividends per share divided by earnings per share. Below about 60% leaves room to keep raising the dividend through a downturn; above 100% means the company pays more than it earns. REITs and pipelines are better judged on cash-flow measures such as FFO or distributable cash flow.
- Qualified dividend
- A U.S. dividend taxed at the lower long-term capital-gains rates (0%, 15% or 20%). It must come from a U.S. or qualifying foreign company, and you must hold the shares for more than 60 days in the 121-day window that starts 60 days before the ex-dividend date. How dividends are taxed →
- Record date
- The date on which a company checks its register to see who is entitled to the dividend. Since the U.S. moved to T+1 settlement on May 28, 2024, the record date is normally the same business day as the ex-dividend date.
- REIT
- A real estate investment trust: a company that owns income-producing property and must distribute at least 90% of its taxable income to shareholders. REITs therefore have high yields and high earnings payout ratios, and most of their dividends are taxed as ordinary income.
- Special dividend
- A one-off dividend paid on top of the regular dividend, often after an asset sale or an unusually strong year. It isn't expected to recur, so it is excluded from yield and growth-streak calculations. Special dividends →
- T+1 settlement
- The rule that U.S. stock trades settle one business day after the trade date. It took effect on May 28, 2024, replacing T+2, which is why the ex-dividend date and record date now normally fall on the same day.
- Total return
- A stock's price change plus the dividends it paid, usually assuming the dividends were reinvested. It is the fair way to compare a high-yield stock with a low-yield grower.
- Trailing dividend yield
- The dividend yield based on dividends actually paid over the past twelve months. It lags behind a recent raise or cut, so it can differ noticeably from the forward yield.
- Undervalued
- Trading below an estimate of fair value. SmarterDividends labels a stock undervalued when its blended fair-value estimate is 15% or more above the share price, and overvalued when it is 15% or more below.
- Weekly dividend ETF
- A fund that distributes income every week, usually an options-income ETF. Weekly payouts can include return of capital and tend to vary from week to week. Weekly dividend stocks & ETFs →
- Yield on cost
- The current annual dividend divided by the price you originally paid per share. If you bought at $50 and the dividend has grown to $3, your yield on cost is 6% even if today's yield is lower.
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Missing a term? Email hello@smarterdividends.com. For longer explanations see the dividend guides.