For the DRIP investor: A little Vocabulary builder or refresher?
by Steve Gail
The sound of school bells ringing and children singing are again slowly entering that period of graduation, Final Exams and SATS.
Tonight, all you DRIP advisors I thought I would offer you up a little SAT prep on your knowledge of expressions that you will hear regarding your experience with dividend investments and dividend reinvestment plans. This isn't a real test and you will not be graded, but here is a list of terms with their definitions that you might want to become familiar with as your DRIP knowledge expands. For all you novices, here is a chance to add to your knowledge, for all you PROS out there; here's a little refresher course. Here is the list, let's see how many you know.
(Definitions are given later on near the bottom of the article.) I'll start out easy and go from there.
2. Dividend department
3. Dividend disbursing agent (DDA)
4. Dividend exclusion rule
5. Dividend payout ratio
6. Dividends per share
7. Dividend yield
8. Ex-dividend date
9. Record date
10. Stock split.
Okay, let's see how you did.
1. Dividend - A distribution of a corporation's earnings. Divisions may be in the form of cash, stock or property. The board of directors must declare all dividends.
2. Dividend department - The department within a brokerage firm that is responsible for crediting client accounts with dividends and interest payments on client securities held in the firm's name. (This definition is important for all of you that also have securities held with a brokerage firm. You just need to realize whom you need to contact if you want to get one share sent out to you to start a DRIP program.)
3. Dividend disbursing agent (DDA) - This is the person responsible for making the required dividend distributions to the broker-dealer's dividend department
4. Dividend exclusion rule - An IRS provision that permits a corporation to exclude from its taxable income 70 percent of dividends received from domestic preferred and common stocks. The Tax Reform Act of 1986 repealed the exclusion for individual investors. (This is something you all should know and remember why you currently pay taxes on your dividends!)
5. Dividend payout ratio - A measure of a corporation's policy of paying out cash dividends, calculated by dividing the dividends paid on common stock by the net income available for common stockholders. The ratio is the complement of the retained earnings ratio.
6. Dividends per share - The dollar amount of cash dividends paid on each common share during one year. (This one's a give me!)
7. Dividend yield - The annual rate of return on a common or preferred stock investment. The yield is calculated by dividing the annual dividend by the stock's purchase price.
8. Ex-dividend date (ex-date)- The first date on which a security is traded that the buyer is not entitled to receive distributions previously declared. (We just had this a couple articles ago.)
9. Record date - The date a corporation's board of director's establishes that determines which of its shareholder's are entitled to receive dividends or rights distributions. (We just covered this definition from the same article as above.)
10. Stock split - an increase in the number of a corporation's outstanding shares, which decreases its stock's par value. The market value of the total number of shares remains the same. The proportional reductions in orders held on the books for a split stock is calculated by dividing the stock's market price by the fraction that represents the split. (One more give me.)
So how did you al do? I am sure you all did fine. We are talking about money, are we not? (smiling). keep up the good work.
Until Next Time,