Dividends

Blue chip

A large, established, consistently profitable company with a long operating history and usually a durable dividend.

Cost basis

The amount invested in a position for tax purposes, used to compute gain or loss on sale; it is adjusted by commissions, reinvested dividends, and corporate actions.

Declaration date

The day the board formally approves a dividend and announces its amount, record date, and payment date.

Dividend aristocrat

A large company that has increased its dividend every year for at least 25 consecutive years.

Dividend capture

Buying just before the ex-dividend date and selling shortly after to collect the payment; the price drop usually cancels the gain.

Dividend cut

A reduction or suspension of the regular dividend, usually a signal of cash strain and often followed by forced selling from income funds.

Dividend payout ratio

The share of earnings paid out as dividends; above 100% the company is paying more than it earns.

Dividend yield

Annual dividends per share divided by the share price, expressed as a percentage; it rises automatically when the price falls.

DRIP (dividend reinvestment plan)

An arrangement that automatically uses dividend cash to buy more shares, often in fractional amounts and sometimes at a discount.

Ex-dividend date

The first day a stock trades without the right to the upcoming dividend; buy on or after it and the seller keeps the payment.

Ex-dividend price adjustment

The automatic reduction of a stock's reference price by the dividend amount on the ex-date, because that cash has left the company.

Income stock

A stock bought mainly for its dividend stream rather than price appreciation, typically with a high yield and modest growth.

Payment date

The day the dividend cash actually arrives in shareholder accounts, typically two to six weeks after the record date.

Qualified dividend

A US dividend taxed at long-term capital gains rates rather than ordinary income rates, subject to a minimum holding period.

Record date

The date on which the company checks its shareholder register; whoever is on it receives the dividend or gets to vote.

Return of capital

A distribution that is not paid out of earnings; it reduces your cost basis instead of being taxed as income when received.

Special dividend

A one-off payment outside the regular schedule, usually after an asset sale or an unusually strong year; it is not expected to repeat.

Stock dividend

A dividend paid in additional shares rather than cash, which increases share count without changing the value of your holding.

Total return

Return including reinvested dividends, not just the price change, and the only fair way to compare a dividend payer with a company that pays nothing.

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