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
What Is Dividend Imputation? Dividend imputation is a tax policy used in Australia and several other countries that eliminates the double taxation of cash payouts from a corporation to its shareholders. The argument behind dividend imputation is that dividends, as customarily handled under tax law, are an example of double taxation. That is, a corporation
What Is the Dividend Irrelevance Theory? The dividend irrelevance theory posits that dividends don’t have any effect on a company’s stock price. A dividend is typically a cash payment made from a company’s profits to its shareholders as a reward for investing in the company. The dividend irrelevance theory goes on to state that dividends
What Is a Dividend Policy? A dividend policy is the policy a company uses to structure its dividend payout to shareholders. Some researchers suggest the dividend policy is irrelevant, in theory, because investors can sell a portion of their shares or portfolio if they need funds. This is the dividend irrelevance theory, which infers that dividend payouts minimally affect
What Is a Dividend Rate? The dividend rate is the total expected dividend payments from an investment, fund or portfolio expressed on an annualized basis plus any additional non-recurring dividends that an investor may receive during that period. Depending on the company’s preferences and strategy, the dividend rate can be fixed or adjustable. Dividend rate is closely
