Diversification
Spreading risk by placing assets in different types of investments (i.e., mutual funds, stocks, bonds, etc.) and various companies in different industry groups (i.e., pharmaceutical, utility, airline, etc.).
See: Diversified Investment Company
Diversified Investment Company
Term used for either closed or open-ended mutual funds or unit trusts that invest in many different kinds of securities and companies. Under the Investment Company Act of 1940, an investment company, with respect to 75% of its portfolio, may not have more than 5% of its assets invested in the securities of any one issuer and may not own more than 10% of the voting shares of any one issuer.
See: Diversification
Divestiture
Disposal of an investment by sale, liquidation or other means. This legal term is also used to describe a corporation's systematic distribution of large blocks of another company's stock which were being held as an investment.
See: Liquidation
Divided Account
A type of a new issue syndicate--also known as a "Western Account"--where all members are liable for selling a percentage of the issue commensurate to their participation. The member's liability ends once it has sold its percentage of the issue.
See: Western Account
Dividend
Distribution of a company's earnings to its shareholders, usually in the form of a quarterly check. The company's board of directors authorize and determine the amount of the dividend. Dividends are taxed as income in the year they are received by the shareholder. A mutual fund dividend is paid out of income and the shareholder's tax is dependent on whether the distributions originated from interest income, capital gains, or dividends received by the fund.
See: Cash Dividend; Cum-Dividend; Dividend Record; Dividend Reinvestment Plan; Dividends Payable; Equalizing Dividend; Ex-Dividend; Extra Dividend; Omitted Dividend; Stock Dividend
Dividend Capture
Investment strategy whereby the investor buys the stock roughly two weeks before it goes ex-dividend and then sells it about two weeks after it has gone ex-dividend in order to collect the dividend and make a small profit on the trade. On the stock's ex-dividend date, its price will drop by the amount of the dividend. The theory is that the stock's price will work its way back up to the price it was at before the ex-dividend date. This allows the investor to sell slightly above the purchase price. Thus, the investor is able to collect the dividend and realize a small capital gain in about four weeks. Also referred to as a "dividend rollover plan."
See: Dividend; Ex-Dividend
Dividend Discount Model
Mathematical model used to identify undervalued stocks. It determines the price that a stock should be selling at based on the discounted value of projected future dividend payments.
See: Dividend
Dividend In Arrears
Cumulative preferred stock dividends that are due but have not been paid.
See: Cumulative Preferred Stock; Dividend
Dividend Payout Ratio
Percentage of earnings paid in cash to shareholders. It is calculated by dividing the dividends paid on common stock by the earnings per share. In general, a corporation with a higher payout ratio will be more mature. A company in a growth phase usually reinvests all earnings and pays little or no dividends.
See: Dividend; Earnings Per Share
Dividend Record
A Standard & Poor's publication that gives data on corporate payment histories and policies.
See: Dividend
Dividend Reinvestment Plan (DRIP)
A program in which a dividend paying company (especially mutual funds) will automatically reinvest an investor's dividend to purchase additional shares of the company's stock. The dividend is still taxable by the IRS. In participating in a DRIP, investors use dollar cost averaging to increase their amount of capital in the stock.
See: Dollar Cost Averaging
Dividend Requirement
The amount of annual earnings needed to pay a preferred stock's contracted dividend.
See: Earnings
Dividend Yield
The annual percentage of return that the dividend provides to the investor on either common or preferred stock-often referred to as just "yield." The yield is calculated by dividing the annual cash dividend per share by the stock's market price at the time of purchase.
See: Yield
Dividends Payable
Dollar amount of dividends that are obligated to be paid once a dividend is declared by the board of directors. The dollar amount is listed as a liability in the annual and quarterly reports.
See: Dividend Record
DJIA (Dow Jones Industrial Average)
Price-weighted average of 30 actively traded blue chip stocks.
See: DJTA; DJUA
DJTA (Dow Jones Transportation Average)
Average of the prices of 20 representative transportation companies.
See: DJIA; DJUA
DJUA (Dow Jones Utility Average)
Average of the prices of 15 geographically representative gas and electric utility companies.
See: DJIA; DJTA
DK (Don't Know Notice)
Brokerage lingo used when dealers, or dealer to custodian, compare a transaction and the trade is unknown by one side. When a dealer receives a comparison for a trade that it does not recognize, the dealer will send the other party a DK notice.
DNR (Do Not Reduce)
A designation used on an order (specifically--buy limit, sell stop and sell stop-limit orders) to specify that an order's limit price should not be reduced by the amount of the dividend. When the stock goes ex-dividend, its price is reduced by the amount of the cash dividend. DNRs only apply to cash dividends.
See: Cash Dividend; Ex-Dividend; Stop Limit Order; Stop Order
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