For people who are just beginning to invest, there may be a lot of terminology used that they don’t understand. It is important to learn what these terms mean and refer to in order to succeed as an investor, because they will come up often. You do not want to invest in something you thought was one thing but turned out to be another!

In this article, we will begin the journey into financial language by defining 10 common dividend stock terms.

1. Dividend

– A company’s payment to its shareholders. Payments are typically made regularly and can be in the form of cash, stock shares, property, or others.

2. Dividend Yield

– Financial ratio that shows the company’s annual total dividend payments in relation to its share price, assuming the number of shares is constant. It is usually shown as a percentage. A low ratio is preferred.

3. Share Price

-The price of single share of a company. If you have more than one share, then it is called a stock. A stock price is the highest amount is usually what an investor will be willing to pay for the stock, while the lowest amount is how much the stock can be bought for. Supply and demand effects the share price of a stock.

4. Diversification

– Investing in a variety of different companies or assets. A collection of these assets is called a portfolio. You want to diversify your portfolio to gain higher returns with lower risk — if an area of the stock market falls, your entire portfolio do not fall all at once.

5. Mutual fund

– A collection of investments in stocks, bonds or a combination of both. Investors own shares of a mutual fund.

6. Net Asset Value (NAV)

– The price per share for a mutual fund, or an exchange traded fund’s (ETF) per-share value. For mutual funds, NAV is determined by closing market prices of the worth of the assets in the fund’s portfolio. Because of this, it is determined once a day.

For ETFs, the prices are like stocks at market value — trading with ETF’s can be either a dollar value above or below NAV.

7. Arbitrage

– Buying and selling assets at the same time in order to profit from the difference in the price the asset was bought/sold in.

8. Day Trader

– A trader that buys and sells stocks, as well as other financial instruments like currencies, all in the same trading day. Everything closes before the market closes at the end of the day, and then the next trading day the trader buys and sells again.

9. Expense Ratio

– Annual fees that are charged for investors who hold any funds or ETFs.

10. Return of Capital (ROC)

– Return received from an investment but is not seen as income (or earnings). This is payment that is bigger than the growth of a company or an investment; thus it decreases the value of the investment.

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