An options trading strategy that involves purchasing put options and an equivalent amount of underlying stock before the ex-dividend date and then exercising the put after collecting the dividend. When used on a security with low volatility (causing lower options premiums) and a high dividend, dividend arbitrage can create profits while assuming very low to no risk. Taobiz explains Dividend Arbitrage For example, suppose that stock XXX is trading at $50 and is paying a $2 dividend in one week's time. A put option with expiry three weeks from now and a strike price of $60 is selling for $11. A trader wishing to structure a dividend arbitrage can purchase one contract for $1,100 and 100 shares for $5,000, for a total cost of $6,100. In one week's time, the trader will collect the $200 in dividends and the put option to sell the stock for $6,000. The total earned from the dividend and stock sale is $6,200, for a profit of $100.
The the sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. DPS can be calculated by using the following formula: D - Sum of dividends over a period (usually 1 year) SD - Special, one time dividends S - Shares outstanding for the period Watch: Dividend Taobiz explains Dividend Per Share - DPS Dividends per share are usually easily found on quote pages as the dividend paid in the most recent quarter which is then used to calculate the dividend yield. Dividends over the entire year (not including any special dividends) must be added together for a proper calculation of DPS, including interim dividends. Special dividends are dividends which are only expected to be issued once so are not included. The total number of ordinary shares outstanding is sometimes calculated using the weighted average over the reporting period. For example: ABC company paid a total of $237,000 in dividends over the last year of which there was a special one time dividend totalling $59,250. ABC has 2 million shares outstanding so its DPS would be ($237,000-$59,250)/2,000,000 = $0.0889 per share. Dividends are a form of profit distribution to the shareholder. Having a growing dividend per share can be a sign that the company's management believes that the growth can be sustained.
How often a dividend is paid by an individual stock or fund. The most common dividend frequencies are annually, biannually and quarterly. There are no uniform calendar dates for when dividends are paid; it depends on the individual company's fiscal calendar. Special or one-time dividends are not measured in terms of their frequency because they only appear sporadically. Watch: Dividend Taobiz explains Dividend Frequency While the dividend rate of a security (such as a common stock) may be in constant flux, the dividend frequency will rarely change. Most equity investors are used to receiving quarterly dividends for the stocks that have instituted a dividend. Monthly dividends, although uncommon, can also be found, typically in securities or funds with extremely dependable cash flows.
A rule that allows corporations to subtract dividends received from income for tax purposes. Dividend exclusion is permitted for domestic corporations in the United States and allows for the exclusion of a percentage of dividend income received from other domestic corporations under income tax provisions. Taobiz explains Dividend Exclusion Prior to the Tax Reform Act of 1986, individuals were also permitted to exclude a certain amount of dividends received from their taxable income. However, effective the following tax year (1987), this allowance was no longer permitted and individuals have since been taxed accordingly for dividend income received.
Any exchange-traded fund that seeks to provide high dividend yields by investing in a basket of high-dividend paying common stocks, preferred stocks or REITs. There are dividend ETFs that contain only U.S. domestic stocks and global dividend ETFs, which have an international focus. The indexes used to create dividend ETFs vary by fund manager or custodian, but most contain stocks with a high level of liquidity and above-market dividend yields. Watch: Dividend Taobiz explains Dividend ETF Although dividend ETFs are passively managed around an index, that index may be the result of certain quantitative screens such as companies with a history of increasing their dividends, or larger blue-chip companies with a higher level of perceived safety. The expense ratios of dividend ETFs should be comparable to, or lower than, the cheapest no-load mutual funds with similar investment objectives. As with all ETFs, dividend ETFs can be traded intraday. These types of funds may be part of the core portfolio of an income-seeking or generally risk-averse stock investor.
An investment strategy in which a dividend-paying stock is purchased right before the ex-dividend date, which gives the purchaser the right to the divided, with the position being sold off shortly after the ex-dividend date. The sole intention of this practice is to reap the value of the dividends while breaking even on the shares. Ideally, this strategy is designed to maximize short-term return on shares while minimizing risk. Also known as a "dividend capture strategy". Watch: Dividend Taobiz explains Dividend Rollover Plan For example, suppose that XYZ Corp. announces that it will distribute a dividend of $2/share and that the ex-dividend date will be on March 16. Joe can attempt a dividend rollover plan by buying the XYZ Corp. stock on March 15 (or any other day before the March 16) and then selling the shares on March 16 to regain most of the purchase value of the shares. Ideally Joe should profit by $2/share (the dividend's value). Proponents of dividend rollover planning argue that immediate returns on investments are made while reducing risk. However, opponents of the strategy believe that the expected dividend value is already incorporated into the stock before the ex-dividend date because the market anticipates the dividend payout.
When a company incurs a new debt in order to pay a special dividend to private investors or shareholders. This usually involves a company owned by a private investment firm, which can authorize a dividend recapitalization as an alternative to selling its equity stake in the company. Also known as a "dividend recap". Taobiz explains Dividend Recapitalization The dividend recap has seen explosive growth, primarily as an avenue for private investment firms to recoup some or all of the money they used to purchase their stake in a business. It is generally not looked upon favorably by creditors or common shareholders because it reduces the credit quality of the company while only benefiting a select few.
The total expected dividend payments from an investment, fund or portfolio expressed on an annualized basis plus any additional non-recurring dividends that may be received during that period. Depending on the company's preferences and strategy, the dividend rate can be fixed or adjustible. Taobiz explains Dividend Rate The dividend rate of an investment, fund or portfolio is calculated by multiplying the most recent periodic dividend payments by the number of periods in one year. For example, if a fund of investments pays a dividend of $0.50 on a quarterly basis and pays an extra dividend of $0.12 per share because of a non-recurring event from which the company benefited, the dividend rate is $2.12 ($0.50 x 4 + $0.12) per year.
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