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Dividing investment funds among a variety of securities with different risk, reward, and correlation statistics
so as to minimize unsystematic risk.
Dividend
A dividend is a portion of a company's profit paid to common and preferred shareholders. A stock selling for
$20 a share with an annual dividend of $1 a share yields the investor 5%.
Dividend clawback
With respect to a project financing, an arrangement under which the sponsors of a project agree to
contribute as equity any prior dividends received from the project to the extent necessary to cover any cash
deficiencies.
Dividend clientele
A group of shareholders who prefer that the firm follow a particular dividend policy. For example, such a
preference is often based on comparable tax situations.
Dividend Discount Model (DDM)
A model for valuing the common stock of a company, based on the present value of the expected future
dividends.
Dividend growth model
A model wherein dividends are assumed to be growing at a constant rate in perpetuity. The value of the
stock equals next years dividends divided by the difference between the required rate of return and the
assumed constant growth rate in dividends.
Dividend limitation
A bond covenant that restricts in some way the firms ability to pay cash dividends.
Dividend payout ratio
Percentage of earnings paid out as dividends.
Dividend policy
An established guide for the firm to determine the amount of money it will pay as dividends.
Dividend rate
The fixed or floating rate paid on preferred stock based on par value.
Dividend Reinvestment Plan (DRP)
Automatic reinvestment of shareholder dividends in more shares of a company's stock, often without
commissions. Some plans provide for the purchase of additional shares at a discount to market price.
Dividend reinvestment plans allow shareholders to accumulate stock over the long term using dollar cost
averaging. The D.R.P. is usually administered by the company without charges to the holder.
Dividend rights
A shareholders rights to receive per-share dividends identical to those other shareholders receive.
Dividends per share
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