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Dividend Stock Glossary
Dividend stock terms
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Adjustable Rate
Annual dividend varies depending on predefined
factors.
Adjusted funds from operations (AFFO)
A cash flow term used mainly by real estate investment trusts (REITs).
See funds available for distribution (FAD).
American Depository Receipt (ADR)
Foreign stocks trade in the U.S. in the form of American Depository
Receipts (ADR). An ADR represents a specified number of shares of the
foreign company’s stock and trades just like a stock.
Anchor Tenant
Barrel
A unit of measure for oil and petroleum products that is equivalent to
42 U.S. gallons.
Basis Point
An interest rate measurement equal to one-hundredth of one percent. For
instance, 50 basis points equals 0.5 percent and 100 basis points equal
one percent.
CAGR
Compound
Annual Growth Rate is year over year growth rate of an investment.
Callable
A security such as a bond or preferred stock that the issuer has the
right to redeem prior to maturity.
Call Date
Earliest date that preferred stocks can be called. Usually five
years after the issue date.
Call Price
Price issuer will pay to redeem preferred stock when called. Usually
the same as the issue price.
The ratio of a bank's capital to its assets
judged to be at risk. The Fed requires a minimum capital ratio of 4% to
8%, depending upon the type and quality of its assets. The Tier 1
Capital Ratio is the Tier 1 capital divided
by risk-weighted assets. Here are the definitions of the three capital
levels for a bank.
Tier 1 Capital: common shareholders' equity, Trust Securities,
minority interests and qualifying preferred stock, less goodwill and
other adjustments.
Tier 2 Capital: preferred stock not qualifying as Tier 1 Capital,
mandatory convertible debt, limited amounts of subordinated debt,
other qualifying term debt, the allowance for credit losses up to
1.25% of risk-weighted assets and other adjustments.
Tier 3 Capital: subordinated debt that is unsecured, fully paid, has
an original maturity of at least two years, is not redeemable before
maturity without prior approval by the FRB and includes a lock-in
clause precluding payment of either interest or principal if the
payment would cause the issuing bank's risk-based capital ratio to
fall or remain below the required minimum.
The capitalization rate (or "cap" rate) for a property is the property's
net operating income divided by its purchase price. Generally, the
higher the cap rate, the higher the return on investment.
Capitalize
Costs of items such as buildings, equipment and other items with a
useful lifetime exceeding one-year are categorized as assets to be
depreciated over a number of years, rather than being expensed in the
year of purchase.
Carry Trade
Profiting on interest rate differentials. For instance, borrowing money
at a relatively low short-term rate and lending it out a higher
long-term rates.
Cash and
Carry Trade
A strategy involving purchasing a security
and selling the corresponding futures contract.
Cash available for distribution (CAD)
See funds available for distribution (FAD).
Closed-End Fund
A special type of mutual fund.
A
closed-end fund sells a fixed number of shares when it starts business
via an IPO. After that, the fund doesn't buy or sell shares. Instead,
its shares trade like stocks and must be purchased from existing holders
or sold to willing buyers. Click here
for more on closed-end funds.
Collateralized Debt Obligation
(CDO)
A security made up of a portfolio of debt
instruments or bonds.
Contango
The condition when futures prices for a
commodity exceed current spot prices.
Convertible
Preferred stock holders have the right to convert shares
to common stock at predetermined ratio after a specified date. This gives
preferred holders a chance to benefit from the common stock’s share
price appreciation.
Coupon Rate
Preferred stock or bond yield based on initial issue price.
Crack Spread
For an oil refinery, crack spread is the difference between the value of
refined products produced and the cost of the crude oil need to produce
the products. In effect, crack spread is the gross margin.
Credit Default Swap
Similar to a credit insurance policy. The buyer of a credit default swap
receives credit protection. The seller 'guarantees' the credit
worthiness of the product.
Cumulative
A company issuing "cumulative" preferred shares must pay any skipped dividends
on those shares before common
stock dividends are paid and before the preferreds are redeemed.
CUSIP
A unique identification number for every security whether common stock,
preferred stock, or a bond.
Declaration Date
Date that dividend is announced.
Distributable Cash Flow
(DCF)
Used mainly by Master Limited Partnerships
(MLPs), distributable cash
flow is net income + depreciation, amortization & other non-cash
expenses - maintenance capital expenditures. See the
Master Limited
Partnerships section for more information.
Distributable Cash Flow
(DCF) Coverage Ratio
The DCF ratio measures compares total
distributable cash flow to the amount paid out to shareholders. If
the DCF ratio is below 1.0, the MLP is not generating enough cash to
cover its distributions. The formula is DCF Ratio = DCF per
unit/distributions per unit.
Dividend Capture
Dividend capture strategies involve buying a stock before the dividend
is paid, holding it for a predetermined period, and then selling it and
moving on to the next dividend stock. See the
Dividend Capture
Strategies section for more information.
Dividend Yield
The expected next 12-month's
dividends divided by the price you paid for a stock. For example, your expected dividend yield is 10% if
you paid $10 per share for a stock that you expect to pay $1 per share in
dividend during the next year. If the share price doubled the next day,
new investors would only receive a 5% yield on the same shares.
Downstream
The refining and marketing sectors of the oil and gas industry.
Dropdown
The sale of an asset from a Master Limited Partnership's
general partner to the MLP.
EBITDA
Earnings before deducting interest, taxes, depreciation and
amortization. Considered a measure of cash earnings.
Equity REIT
A REIT that primarily own properties as opposed to mortgage REITs. Most
REITs fit that definition.
Ex-Dividend Date
The first day that new buyers are not eligible to receive a
dividend. Dividend payers specify a date when shareholders of record are
eligible for the dividend. Since it takes three business days for a
stock purchase to take effect, you must purchase a stock three days
before the 'shareholders of record' date. So the ex-dividend date is two
business days before the 'shareholders of record' date
(business days are defined by when banks are open in New York
City, not stock market days). For
example, if a firm announces a record date falling on a Thursday,
the ex-date will be on Tuesday, two days earlier (assuming Tuesday,
Wednesday and Thursday are not bank holidays).
Special
case: If the dividend payout is 25% or more of the share price, the
ex-date is the first market day following the pay date. For example, if
August 10 is the record date and August 31 is the pay date, the
ex-date is September 1, the first market day after the pay date. In this
example, a seller on August 15, even though the holder of record to
receive the dividend, would have to relinquish the dividend to the
buyer.
Fannie Mae
The Federal National Mortgage Association (FNMA), a government-owned
organization set up to facilitate mortgage lending by buying mortgage
loans from banks and other mortgage originators.
Funds Available for Distribution (FAD)
Cash available to pay dividends. Generally, it's funds from operations (FFO)
less expected capital expenses such as expenses for new roofs,
modernizing properties, etc. Also called ‘cash available for
distribution’ (CAD) or ‘adjusted funds from operations’ (AFFO).
Funds From Operations (FFO)
A term used mainly by Real Estate Investment Trusts (REITs).
According to generally accepted accounting practices (GAAP), commercial
property owners must depreciate the cost of the buildings and other
improvements on their land down to zero over a specified time, say 20
years. For example, assume that a building worth $20 million is
depreciated evenly over 20 years. In that instance, the owner would
deduct $1 million from its reported earnings annually. That works out
great when the calculating income taxes, but isn’t realistic. Since
construction costs increase every year, a building’s value is more
likely to increase than drop.
Consequently, the National Association of Real Estate Investment Trusts
(NAREIT) devised “funds from operations” or FFO, which is a more
realistic earnings measure.
FFO is computed by adding back the depreciation and amortization charges
to net income, and excluding gains or losses from property sales. More
about Real Estate
Investment Trusts (REITs).
Gain on Sale Accounting
A financial firm such as a mortgage REIT sells packages of loans
(securitizes) to other investors and records a lump-sum non-cash gain on
the sale based on the income it expects to receive over time. Since the
gains are based on management assumptions, it’s tempting for management
to overstate the gain on sale figures.
Gas-to-Liquids (GTL)
The conversion of natural gas to liquid form so that it can be
transported easily.
Ginnie Mae
The Government National Mortgage Association (GNMA), a government-owned organization set up to facilitate mortgage lending by buying mortgage
loans from banks and other mortgage originators.
General Partner
Manages
the operations of a Master Limited Partnership.
The general partner typically holds a 2%
general partner interest in the MLP plus additional limited partner
units (shares). Click
here for a list of MLP General
Partners.
Gross Leasable Area (GLA)
Used by property REITs, GLA is the total square footage of property available for lease.
Ground Lease
Tenant is responsible for constructing buildings and other improvements
on leased land.
Hybrid Mortgage
A combination adjustable and fixed rate mortgage. Typically, the
interest rate is adjusted once, after a predetermined period, and then
the interest rate remains fixed for the remaining term of the loan.
Implied Capitalization Rate
Net operating income (NOI) divided by enterprise value, which is market
capitalization plus total outstanding debt.
Integrated
An oil company that operates in all sectors of the industry from
exploration through refining and marketing.
Interest Coverage Ratio
A financial strength measure which is calculated by dividing EBITDA by
annual interest expense.
Issue Price
Original share price of preferred stock.
Jumbo Mortgage
A loan with an amount above the maximum limit set by Fannie Mae and
Freddie Mac, the two government corporations that buy
mortgage loans from lenders.
Junk Bonds
Bonds issued by corporations with below investment grade ratings.
K-1 Statement
The K-1 is the federal income tax form that you must
use if you own Master Limited Partnerships.
Leverage
A measure of debt. A highly leveraged company has high debt. The
leverage ratio is total assets divided by shareholders’ equity. A
leverage ratio of 1.0 means that the company has no debt, and the higher
the ratio, the more debt.
Leveraged Buyout
A situation where investors acquire a corporation mostly using borrowed
funds. The borrowings are secured by the assets of the corporation being
acquired.
Market Yield
For preferred shares, yield based on current trading price.
Master Limited Partnership (MLP)
An entity consisting of a general (master) partner that controls the organization
and limited partners. An MLP distributes all of its profits to the
general and limited partners, and hence, does not pay corporate income
taxes. When an MLP distributes profits, the general partner receives a
percentage off the top (see Incentive Distribution Rights), before the limited partners get their cut.
MLPs trade on major stock exchanges, just like stocks.
See the Master
Limited Partnerships section for a list of MLPs.
Maturity Date
The date when preferred shares or bonds must be redeemed by the issuing
firm.
Midstream
The pipeline and storage sectors of petroleum and natural gas
industries.
Mezzanine Financing
The type of
unsecured financing most often supplied by Business Development
Corporations.
These loans often include an "equity kicker" such as a common stock
warrant or right to convert all or part of the loan into common
stock.
See the Business
Development Corporations section for more.
When the
term is used by venture capitalists, mezzanine financing is the last
stage of private financing used by a company before it goes public.
Mortgage REIT
A Real Estate Investment Trust that invests in mortgages and other debt instruments secured by
real estate. Click
here for a list of Mortgage REITS.
NAREIT
National
Association of Real Estate Investment Trusts, Inc. A REIT trade group.
Natural Gas Liquids (NGL)
Raw natural gas is mostly methane, but also
contains ethane and natural gas liquids such as propane, butane,
pentane, hexane and heptane. Unlike the liquids, methane and ethane are
in gas form and require refrigeration to be liquefied.
Negative Gap
A banking term indicating a condition where interest-sensitive
liabilities exceed interest-sensitive assets.
Net Asset Value (NAV)
Book value, which is calculated according to generally accepted
accounting practices (GAAP) doesn't work well for real estate investment
trusts. According to
GAAP, real estate properties are valued at their original purchase price
less accumulated depreciation. Over time, most
real property goes up in value, not down. So for equity REITs (owners of
real estate as opposed to mortgage REITs), book value is meaningless.
Consequently, REITs publish the net asset value (NAV), which is the
estimated current market value of its properties, in addition to book
value. The Price/NAV ratio gauges whether a REIT’s share price is
currently undervalued or overvalued compared to its holdings. In
practice, most REITs trade at discounts to their NAV.
Net Interest Margin
Profit margin on interest earning assets. It’s calculated by subtracting
interest-related expenses from interest income, and dividing the result
by the average value of interest earning assets.
Net Operating Income (NOI)
Income from real estate operations before deducting income taxes and
interest expenses. Does not include fee income.
Net Income
After-tax earnings (a.k.a. bottom-line or profit). Earnings per share
(EPS) is net income divided by the number of outstanding shares.
Non-Cumulative Preferred Stock
Issuer can suspend preferred dividend payouts and is not required to pay
any skipped dividends. However, issuer cannot not pay common stock
dividends while preferred dividends are suspended.
Owner of Record Date
The official owner on this date gets the dividend. It takes three business days
from purchase to be the owner of record. Thus, you would not collect the
dividend if you purchased two days before the owner of record date. In
other words, the ex-dividend date (date not eligible to collect
dividend) is two business days
before the "owner of record" date.
Par Value
Meaningless for regular stocks. For preferreds, par value is the same as
the issue price. For bonds, par value is typically $1,000.
Participating
A preferred stock's dividend varies depending on issuing firm’s net
income or dividends paid to common shareholders.
Payment Date
Date
a dividend is
deposited into your brokerage account.
Payout Ratio
Percentage of net income paid out in dividends. Not meaningful for firms
with high values of depreciable assets such as Real Estate Investment
Trusts or Master Limited Partnerships.
Preferred Stock
Preferred stock is a debt instrument, something like a bond. Preferred
stocks generally pay predetermined quarterly dividends. Unlike bonds,
preferred stocks trade like regular stocks. Convertible preferred shares can be converted
into common stock according to predetermined conditions. See the
Preferred Stock
section for more.
Power Center
Shopping centers with three or more "big box" anchors such as Toys R Us,
Home Depot and Target.
Real Estate Investment Trust (REIT)
REITs are a special form of corporation that invests only in real
estate. REITs do not pay corporate income tax as long as they pay out at
least 90% of their earnings as dividends to share owners. REIT shares
trade on the major exchanges the same as any other stock. See the
Real Estate
Investment Trust section for lists of REITs.
Repurchase Agreement (REPO)
An borrowing arrangement where a holder sells securities, but
simultaneously agrees to buy them back at a specified price at a later
date.
Reserve Ratio
The ratio
of a bank's reserves to its demand deposits (checking accounts).
Return of Capital
The portion of a dividend or distribution that is not taxable as ordinary income
during the year paid. Instead, the return of capital reduces the
shareholder's tax basis, and is taxed, usually at capital gains rates, when the
shares are sold.
Sallie Mae
Student Loan Marketing Association,
a quasi-government corporation that provides liquidity for
student loans.
Securitization
Packaging individual loans into a group, and then selling the loan
package to investors.
Straight Lining
The practice of accounting for a tenant’s rent payments over the life of
a lease as equal yearly payments, even though the actual payments vary
from year to year.
Subordinated Debt
Debt that is junior to other (senior) debt.
That is, in the event of bankruptcy, the subordinated debt would have
lower priority than the more senior debt.
Tenant Improvements
Construction costs to prepare a specific tenant’s space for occupancy.
Third Party Trust Preferred
A Trust Preferred issued by a third
party such as an underwriter.
Total Return
The total annual return you receive on a stock is the dividend yield
plus the stock price appreciation over the year.
Triple Net Lease
A lease that requires the tenant to pay all maintenance, taxes,
insurance, and other expenses related to the leased property.
Trust Preferred
A type of preferred stock that provides certain
income tax and accounting advantages over traditional preferreds to the
issuer. If the issuer suspends dividends, shareholders may still be
liable for income taxes on the unpaid dividends.
Umbrella Partnership REIT (UPREIT)
Instead of owning properties directly, the REIT is the general partner
and has a majority interest in a partnership that owns and manages the
properties. The UPREIT structure offers tax advantages to a property
owner, when the owner converts to a REIT via an IPO (initial public
offering).
Upstream
The exploration and production (E&P) sectors of the oil and gas
industry.
Yield to Call
Annualized return you would receive on a preferred stock or bond assuming that the
security is
redeemed on the call date.
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