DIVIDEND CLAWBACK

Today's word: DIVIDEND CLAWBACK
Theme for this fortnight: DIVIDENDS

An arrangement under which those financing a project agree to contribute, as equity, any prior dividends received from the project to cover any cash shortages.

When there is no cash shortfall, those investors who provided funding are able to keep their dividends. A dividend clawback arrangement provides incentive for a project to remain on budget so that investors do not have to return dividends received prior to a cost overrun.

 

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DIVIDEND DRAG

Today's word: DIVIDEND DRAG
Theme for this fortnight: DIVIDENDS

A disadvantage of the dividend structure of unit trust exchange-traded funds (ETFs) that results from SEC rules that stipulate that passively managed ETFs cannot reinvest dividends back into the portfolio. ETFs must instead accumulate the dividends in cash and pay them to holders at periodic intervals. During periods of rising markets, the dividends would be better served being reinvested in securities rather than held in cash. This leads the ETF to lag a portfolio that would be able to reinvest.

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SYNTHETIC DIVIDEND

Today's word: SYNTHETIC DIVIDEND
Theme for this fortnight: DIVIDENDS

A type of incoming cash flow that an investor creates with certain financial securities to produce a dividend-like payment stream that resembles the periodic cash receipts from a dividend-paying stock.

For example, suppose an investor owns shares in a company that does not pay a quarterly dividend. In order to create a cash-flow stream from the shares, the investor could write covered call options on the underlying stock. By doing so, he or she would receive the option premiums as an incoming cash flow, but would be obligated to sell the shares to the option-buyer should that person choose to exercise the options.

This situation, while limiting the potential price appreciation the investor can realize from his or her own shares, creates a dividend-like cash flow stream.

     

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SPILLOVER DIVIDEND

Today's word: SPILLOVER DIVIDEND
Theme for this fortnight: DIVIDENDS   

A type of dividend in which the payment year and the taxable year occur at different times. Most often, this occurs when the dividend has been declared near the end of the calender year (during the fourth quarter), but the actual distribution date of the dividend payment does not occur until the first quarter of the following year.

 

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LOOK THRU

Today's word: LOOK THRU
Theme for this fortnight: DIVIDENDS

 

A complex provision defined in section 954(c)(6) of the U.S. Internal Revenue Code that lowered taxes for many U.S. multinational companies. The look thru rule gave qualifying U.S. multinationals a lower global effective tax rate by providing a special accounting method for calculating taxes owed on income from controlled foreign corporations. The rule was originally effective from Jan. 1, 2006 through Dec. 31, 2009, but the 2010 Tax Relief Act extended the rule through Dec. 31, 2011.

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DIVIDEND PUZZLE

Today's word: DIVIDEND PUZZLE
Theme for this fortnight: DIVIDENDS

The question concerning why companies pay dividends. According to some theorists, investors should not need dividends as an incentive to purchase stock in a company. Thus the question of why some firms pay dividends is a puzzle.

 

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HOMEMADE DIVIDEND

Today's word: HOMEMADE DIVIDEND
Theme for this fortnight: DIVIDENDS

A form of investment income that comes from the sale of a portion of shares held by a shareholder. This differs from dividends that shareholders receive from a company according to the number of shares the shareholder has.

The existence of homemade dividends is the reason some financial analysts believe that looking at a companies dividend policy is not important. If investors desires an income stream they will either sell their shares when they want the income or they will invest in other income-generating assets.

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