Dividend glossary
25 dividend terms in plain words. Each one links to the calculator that works it out with your own numbers, and the rules come from the SEC, FINRA and the IRS.
Capital gain distribution
A payout from a mutual fund or REIT out of the gains it made selling investments. It is shown in box 2a of Form 1099-DIV and taxed as a long-term capital gain, no matter how long you owned the fund.
Declaration date
The day a company’s board announces a dividend: the amount, the record date and the payable date. The ex-dividend date follows from the record date under stock exchange rules.
- Will I Get the Dividend?
- Read: How ex-dividend dates work, and the one day that decides who gets paid
Source: SEC, Investor.gov: Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends
Dividend
A portion of a company’s profit paid to its shareholders, usually in cash on a fixed schedule such as every quarter. Companies can also pay one outside the schedule, called a special dividend.
Source: SEC, Investor.gov: Dividend
Dividend capture
Buying a stock just before its ex-dividend date to collect the dividend, then selling soon after. The price tends to drop by about the dividend on the ex-date, and selling before you have held the shares more than 60 days makes the dividend ordinary income instead of qualified.
Source: SEC, Investor.gov: Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends; IRS Publication 550, Investment Income and Expenses
Dividend frequency
How often a stock or fund pays: monthly, quarterly, twice a year or once a year. The yearly dividend is one payment times the number of payments in a year, so $0.50 a quarter is $2.00 a year.
Dividend growth rate
How fast a dividend has grown each year on average, usually measured as a compound annual growth rate (CAGR) between two years’ dividends. At 7% a year, a dividend doubles in a little over 10 years.
Dividend reinvestment plan (DRIP)
A plan that uses your dividends to buy more shares of the same stock instead of paying you cash. You set it up with the company or your broker; ask whether they charge for it. Reinvested dividends are still taxable income in the year they are paid.
Source: SEC, Investor.gov: Direct Investing (direct stock plans and DRIPs); IRS Publication 550, Investment Income and Expenses
Dividend yield
A year of dividends divided by the share price, as a percentage. A $50 stock paying $2.00 a year yields 4%. The yield rises when the price falls and falls when the price rises, even if the dividend stays the same.
Ex-dividend date (ex-date)
The first day a buyer of the stock does not get the next dividend; the seller keeps it. To get the dividend, buy before the ex-date. Since US trades moved to one-day settlement, the ex-date is usually the same business day as the record date.
- Will I Get the Dividend?
- Read: How ex-dividend dates work, and the one day that decides who gets paid
Source: SEC, Investor.gov: Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends
Ex-dividend price drop
On the ex-dividend date a stock’s price tends to open lower by about the dividend, because new buyers no longer get it. Normal market moves can hide the drop on a small dividend; on a large one it is easy to see.
Source: SEC, Investor.gov: Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends
Form 1099-DIV
The tax form your broker or fund sends after the year ends. Box 1a shows total ordinary dividends, box 1b the qualified part, box 2a capital gain distributions, and box 3 nondividend distributions (return of capital).
Source: IRS: About Form 1099-DIV, Dividends and Distributions; IRS Publication 550, Investment Income and Expenses
Forward and trailing yield
Two ways to count the dividend in a yield. Trailing yield uses what was actually paid over the last 12 months; forward yield takes the latest payment times the payments in a year. After a raise, the forward yield is the higher one.
Holding period (qualified dividends)
To be taxed at the lower qualified rate, you must hold the shares more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Count the day you sell, not the day you buy.
Net investment income tax (NIIT)
A 3.8% federal tax on investment income, dividends and interest included, for people whose modified adjusted gross income is above $200,000 (single or head of household), $250,000 (married filing jointly) or $125,000 (married filing separately).
Ordinary dividend
The most common kind of dividend, paid out of a company’s earnings and profits and shown in box 1a of Form 1099-DIV. The part that isn’t qualified is taxed at your regular income tax rate.
Payable date (pay date)
The day the dividend is actually paid into shareholders’ accounts, anywhere from a day to several weeks after the record date. If you owned the shares when the ex-date began, you are paid on this date even if you have sold since.
Source: SEC, Investor.gov: Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends
Payout ratio
The share of a company’s earnings paid out as dividends: dividends per share divided by earnings per share. A $2.00 dividend on $5.00 of earnings is a 40% payout ratio. Above 100%, the dividend is bigger than the earnings it is measured against.
Qualified dividend
An ordinary dividend that is taxed at the lower 0%, 15% or 20% rate that applies to long-term capital gains. It must come from a US company or a qualified foreign one, and you must meet the holding period. Box 1b of Form 1099-DIV shows it.
Record date
The day a company checks its list of shareholders to see who gets the dividend. You must be on its books that day. Since trades settle one business day after you buy, you must buy before the ex-date to be on the list.
- Will I Get the Dividend?
- Read: How ex-dividend dates work, and the one day that decides who gets paid
Source: SEC, Investor.gov: Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends
Return of capital (nondividend distribution)
A distribution that isn’t paid out of a company’s or fund’s earnings and profits. It isn’t taxed when you receive it; instead it lowers your cost basis in the shares until that reaches zero. Form 1099-DIV shows it in box 3.
Settlement (T+1)
When a trade becomes final and the shares officially change hands. US stock trades settle one business day after the trade date (T+1) since May 28, 2024. That is why the ex-dividend date and the record date are now usually the same day.
- Will I Get the Dividend?
- Read: How ex-dividend dates work, and the one day that decides who gets paid
Source: SEC press release 2023-29: SEC Finalizes Rules to Reduce Risks in Clearance and Settlement (T+1)
Special dividend
A one-time dividend outside the company’s regular schedule, also called an extra dividend. When it is 25% or more of the share price, the ex-dividend date moves to the business day after it is paid.
Source: SEC, Investor.gov: Dividend; SEC, Investor.gov: Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends; FINRA Rule 11140: Transactions in securities “ex-dividend”
Stock split
More shares for everyone, each worth less: in a 4-for-1 split you get four shares for each one you had. The dividend per share is divided the same way, so your total dividend doesn’t change. Older dividend history is usually adjusted to match.
- Dividend Calculator
- Read: Stock splits and dividends: what happens to your payout when a stock splits
Source: SEC, Investor.gov: Stock Split
Yield on cost (YOC)
A year of dividends divided by what you paid per share, not today’s price. Bought at $40 and now paying $2.40 a year, a stock has a 6% yield on cost, even if at today’s $60 price it yields 4%.
Plain definitions for learning, not financial or tax advice. Reviewed Saturday, October 10, 2026.