Glossary
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Glossary
A glossary page for a newsletter or research publisher whose readers meet specialist terms every week. Terms are grouped into topics with an index at the top, each defined in a sentence or two of plain English, with worked examples for the trickier calculations and a few tips on how to use them. Add the terms your own readers ask about, link to the glossary from your issues, and keep the examples simple enough to follow without a calculator.
Glossary of investing terms
The words we use most often in The Dividend Ledger, explained in plain English. If you meet a term in an issue that is not here, email hello@example.com and we will add it.
Dividend basics
Dividend
A cash payment a company makes to its shareholders, usually from its profits. Most US companies pay quarterly.
Dividend yield
The yearly dividend divided by the share price, shown as a percentage. It tells you how much income you get for each dollar you invest today.
Ex-dividend date
The cut-off date for the next dividend. You must own the shares before this date to receive the payment. Buy on or after it and the dividend goes to the seller.
Record date and payment date
The record date is when the company checks its list of shareholders, usually one business day after the ex-dividend date. The payment date is when the cash actually reaches your account, often a few weeks later.
Dividend growth rate
How fast a company has raised its dividend, usually given as an average yearly rate over five or ten years.
DRIP
A dividend reinvestment plan. Instead of taking cash, your dividends automatically buy more shares, often including fractions of a share.
A stock trades at $50 and pays $0.50 a quarter. The yearly dividend is 4 x $0.50 = $2.00. The yield is $2.00 / $50 = 4.0%.
Dividend safety
Payout ratio
The share of a company's earnings it pays out as dividends. A payout ratio of 60% means 60 cents of every dollar of profit goes to shareholders. Lower usually means more room to keep paying in a bad year.
Free cash flow
The cash a business has left after paying its running costs and investing in its equipment and buildings. Dividends are paid in cash, so we often check them against free cash flow rather than earnings.
Dividend cut
When a company lowers or stops its dividend. Cuts usually follow a fall in profits or a rise in debt, and the share price often drops sharply when one is announced.
Payout-safety score
Our own score from 1 to 100 that rates how likely a company is to keep paying and raising its dividend. Above 70 is safe, 40 to 70 is worth watching and below 40 is at risk.
Dividend Aristocrat
A company in the S&P 500 that has raised its dividend every year for at least 25 years in a row.
Valuation
Price to earnings (P/E)
The share price divided by a year of earnings per share. It shows how many dollars investors are paying for each dollar of profit. A lower P/E can mean a cheaper stock, or one the market expects to struggle.
Buy-up-to price
The highest price at which we think a stock is still worth buying. Above it, we expect the return to be too low to justify the risk.
Total return
The full gain from an investment: the change in share price plus all the dividends received.
Net debt to EBITDA
A company's debt, minus its cash, divided by its yearly earnings before interest, taxes, depreciation and amortization. It shows how many years of earnings it would take to pay off the debt. Under 3x is comfortable for most businesses; utilities can safely carry more.
A company earns $4.00 a share and pays a $2.40 dividend. Its payout ratio is $2.40 / $4.00 = 60%.
Portfolio terms
| Term | What it means |
|---|---|
| Full position | A holding sized at our standard weight, about 4% of the model portfolio. |
| Half position | A holding at half our standard weight, often after a trim or for a riskier idea. |
| Trim | Selling part of a holding, usually because it has grown too large or its yield has fallen. |
| Rebalance | Buying and selling to bring each holding back to its target weight. |
| Yield on cost | Today's yearly dividend divided by the price you originally paid, which rises as the dividend grows. |
| Diversification | Spreading money across many companies and sectors so one bad result does less harm. |
Definitions are simplified for general education and are not investment advice. Sample content: adapt the terms and examples to your own publication.
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