What Is a Diversity Score? The diversity score is a proprietary tool developed by Moody’s Investors Service that estimates the level of diversification in a portfolio containing alternative assets. In particular, it was initially created to gauge the relative risk of particular collateralized debt obligations (CDOs). As the mortgage CDO market expanded in the early 2000s, however
What Is Divestment? Divestment is the process of selling subsidiary assets, investments, or divisions of a company in order to maximize the value of the parent company. Also known as divestiture, divestment is effectively the opposite of an investment and is usually done when that subsidiary asset or division is not performing up to expectations.
What Is a Dividend? A dividend is the distribution of a company’s earnings to its shareholders and is determined by the company’s board of directors. Dividends are often distributed quarterly and may be paid out as cash or in the form of reinvestment in additional stock. The dividend yield is the dividend per share and
What Is a Dividend-Adjusted Return? A dividend-adjusted return is a calculation of a stock’s return that relies not only on capital appreciation but also on the dividends that shareholders receive. This adjustment provides investors with a more accurate evaluation of the return of an income-producing security over a specified holding period. Key Takeaways A dividend-adjusted
What Is Dividend Arbitrage? Dividend arbitrage is an options trading strategy that involves purchasing put options and an equivalent amount of underlying stock before its 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
What Is Dividend Capture? The term dividend capture refers to an investment strategy that focuses on buying and selling dividend-paying stocks. It is a timing-oriented strategy used by an investor who buys a stock just before its ex-dividend or reinvestment date to capture the dividend. The investor then sells it on or after the ex-dividend
What Is Dividend Drag? Dividend drag is the negative effect of the dividend structure of a unit investment trust (UIT), or exchange-traded funds (ETF) without an automatic reinvestment program, whereby investors can’t immediately reinvest their dividends. There is a time lag between when dividends are issued and when those dividends can be reinvested. If the
What Is a Dividend ETF? A dividend ETF is an exchange-traded fund (ETF) designed to invest in a basket of dividend-paying stocks. The fund manager will choose a portfolio of stocks, based on a dividend index, that pays out dividends to investors, thereby working as an income-investing strategy for individuals that purchase the ETF. Key
What Is Dividend Exclusion? Dividend exclusion refers to an Internal Revenue Service (IRS) provision that allows corporations to subtract a portion of dividends received when they calculate their taxable income. Dividend exclusions only apply to corporate entities and the investments that they have in other companies, it does not apply to individual shareholders. The purpose of
What Is Dividend Growth Rate? The dividend growth rate is the annualized percentage rate of growth that a particular stock’s dividend undergoes over a period of time. Many mature companies seek to increase the dividends paid to their investors on a regular basis. Knowing the dividend growth rate is a key input for stock valuation
