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how do you do a dividend discount model | the calculation for the dividend discount model is intrinsic value sum of present value of dividends present value of stock sales price | |
what is the 25 dividend rule | if a dividend will be high the price of the stock may fall by the value of the dividend on the ex dividend date the 25 dividend rule states that if the dividend is 25 or more than the stock s value then the ex dividend date will be deferred to one business day after the dividend is paid 9the bottom linethe dividend discount model can help investors pick stocks helping to determine whether a stock is overbought or oversold even when comparing investments across different sectors the model is best used for stocks with a long dividend history and is not as suitable for ones with a short dividend history or no dividend history at all as with any investment a multitude of factors should be evaluated before finalizing a decision | |
the dividend growth rate is the annualized percentage rate of growth that a particular stock s dividend undergoes over a period of time many mature companies seek to increase the dividends paid to their investors on a regular basis knowing the dividend growth rate is a key input for stock valuation models known as dividend discount models | understanding the dividend growth ratebeing able to calculate the dividend growth rate is necessary for using the dividend discount model the dividend discount model is a type of security pricing model the dividend discount model assumes that the estimated future dividends discounted by the excess of internal growth over the company s estimated dividend growth rate determine a given stock s price if the dividend discount model procedure results in a higher number than the current price of a company s shares the model considers the stock undervalued investors who use the dividend discount model believe that by estimating the expected value of cash flow in the future they can find the intrinsic value of a specific stock a history of strong dividend growth could mean future dividend growth is likely which can signal long term profitability for a given company when an investor calculates the dividend growth rate they can use any interval of time they wish they may also calculate the dividend growth rate using the least squares method or by simply taking a simple annualized figure over the time period | |
how to calculate the dividend growth rate | an investor can calculate the dividend growth rate by taking an average or geometrically for more precision as an example of the linear method consider the following a company s dividend payments to its shareholders over the last five years were to calculate the growth from one year to the next use the following formula in the above example the growth rates are the average of these four annual growth rates is 3 56 to confirm this is correct use the following calculation example dividend growth and stock valuationto value a company s stock an individual can use the dividend discount model ddm the dividend discount model is based on the idea that a stock is worth the sum of its future payments to shareholders discounted back to the present day the simplest dividend discount model known as the gordon growth model ggm s formula is p d 1 r g where p current stock price g constant growth rate expected for dividends in perpetuity r constant cost of equity capital for the company or rate of return d 1 value of next year s dividends begin aligned p frac d 1 r g textbf where p text current stock price g text constant growth rate expected for text dividends in perpetuity r text constant cost of equity capital for the text company or rate of return d 1 text value of next year s dividends end aligned p r gd1 where p current stock priceg constant growth rate expected fordividends in perpetuityr constant cost of equity capital for thecompany or rate of return d1 value of next year s dividends in the above example if we assume next year s dividend will be 1 18 and the cost of equity capital is 8 the stock s current price per share calculates as follows p 1 18 8 3 56 26 58 | |
what is a good dividend growth rate | a good dividend growth rate can be different for every investor generally investors should seek out companies that have provided 10 years of consecutive annual dividend increases with a 10 year dividend per share compound annual growth rate cagr of 5 1 | |
what is the difference between dividend yield and dividend growth | dividend yield is the amount that a company pays out in dividends compared to its stock price dividend growth is the increase in the value of dividends that a company pays out over a period of time | |
do dividends grow every year | whether or not dividends grow every year will depend on the company generally well established companies that pay dividends will ensure that dividends grow every year however it is not guaranteed that dividends grow every year the bottom linedividends can be a great boon to investor portfolios providing a regular stream of income which can be particularly beneficial when a stock hasn t witnessed much appreciation understanding how a company views its dividend payments and how the dividend s growth has been can help investors make wise investment decisions utilizing the dividend growth rate calculation can help with these investment decisions | |
what is dividend irrelevance theory | dividend irrelevance theory posits that dividends don t have any effect on a company s stock price a dividend is typically a cash payment made from a company s profits to its shareholders as a reward for investing in the company dividend irrelevance theory goes on to state that dividends can hurt a company s ability to be competitive in the long term since the money would be better off reinvested in the company to generate earnings although there are companies that have likely opted to pay dividends instead of boosting their earnings there are many critics of dividend irrelevance theory who believe that dividends help a company s stock price to rise understanding dividend irrelevance theorydividend irrelevance theory suggests that a company s payment of dividends should have little to no impact on the stock price if this theory holds true it would mean that dividends do not add value to a company s stock price the premise of the theory is that a company s ability to earn a profit and grow its business not dividend payments determines a company s market value and drives the stock price those who believe in dividend irrelevance theory argue that dividends don t offer any added benefit to investors and in some cases argue that dividend payments can hurt the company s financial health 1dividend irrelevance theory was developed by economists merton miller and franco modigliani in 1961 the duo are also responsible for the modigliani miller theorem both were awarded the nobel prize in economics dividends and stock pricedividend irrelevance theory holds that the markets perform efficiently so that any dividend payout will lead to a decline in the stock price by the amount of the dividend in other words if the stock price was 10 and a few days later the company paid a dividend of 1 the stock would fall to 9 per share as a result holding the stock for the dividend achieves no gain since the stock price adjusts lower for the same amount of the payout 1however stocks that pay dividends like many established companies called blue chip stocks often increase in price by the amount of the dividend as the book closure date approaches although the stock can decline once the dividend has been paid many dividend seeking investors hold these stocks for the consistent dividends that they offer which creates an underlying level of demand also the stock price of a company is driven by more than the company s dividend policy analysts conduct valuation exercises to determine a stock s intrinsic value these often incorporate factors such as dividends and a company s financial healthdividend irrelevance theory suggests that companies can hurt their financial well being by issuing dividends which is not an unprecedented occurrence dividends could hurt a company if the company is taking on debt in the form of issuing bonds to investors or borrowing from a bank s credit facility to make their cash dividend payments let s say that a company has made acquisitions in the past that have resulted in a significant amount of debt on its balance sheet the debt servicing costs or interest payments can be detrimental also excessive debt can prevent companies from accessing more credit when they need it most if the company has a hard line stance of always paying dividends proponents of dividend irrelevance theory would argue that the company is hurting itself over several years all of those dividend payouts could have gone to paying down debt less debt might lead to more favorable credit terms on the remaining outstanding debt allowing the company to reduce its debt servicing costs 3also debt and dividend payments might prevent the company from making an acquisition that might help increase earnings in the long term of course it s difficult to pinpoint whether dividend payments are to blame for a company s underperformance mismanaging its debt poor execution by management and outside factors such as slow economic growth could all add to a company s difficulties however companies that don t pay dividends have more cash on hand to make acquisitions invest in assets and pay down debt if a company is not investing in its business through capital expenditures capex there could be a decline in the company s valuation as earnings and competitiveness erode over time capital expenditures are large investments that companies make for their long term financial health and can include purchases of buildings technology equipment and acquisitions investors that buy dividend paying stocks need to evaluate whether a management team is effectively balancing the payout of dividends and investing in its future dividend irrelevance theory and portfolio strategiesdespite dividend irrelevance theory many investors focus on dividends when managing their portfolios for example a current income strategy seeks to identify investments that pay above average distributions i e dividends and interest payments while relatively risk averse overall current income strategies can be included in a range of allocation decisions across a gradient of risk strategies focused on income are usually appropriate for retirees or risk averse investors these income seeking investors buy stocks in established companies that have a track record of consistently paying dividends and a low risk of missing a dividend payment blue chip companies generally pay steady dividends these are multinational firms that have been in operation for a number of years including coca cola pepsico and walgreens boots alliance these companies are dominant leaders in their respective industries and have built highly reputable brands surviving multiple downturns in the economy also dividends can help with portfolio strategies centered around the preservation of capital if a portfolio suffers a loss from a decline in the stock market the gains from dividends can help offset those losses preserving an investor s hard earned savings | |
why do companies pay dividends | companies pay dividends as a way to share profits with shareholders not all companies pay dividends | |
how are dividends paid | in general dividends are paid in cash dividend payments can also be reinvested in the stock distributing them to buy more shares who is eligible for stock dividends shareholders who buy or already own a company s stock before the ex dividend date will receive dividends on the date of payment a company s board of directors determines these dates the bottom linedividend irrelevance theory maintains that dividend payments don t impact a company s stock price the theory was developed by economists merton miller and franco modigliani both nobel laureates the theory is not without its critics for example some maintain that a company s ability to pay out regular dividends signals financial strength and sustainability to investors which can positively impact a stock s price | |
what is a dividend payout ratio | the dividend payout ratio is the total amount of dividends that a company pays to shareholders relative to its net income put simply this ratio is the percentage of earnings paid to shareholders via dividends the amount not paid to shareholders is retained by the company to pay off debt or to reinvest in its core operations the dividend payout ratio is sometimes simply referred to as the payout ratio investopedia zoe hansenformula and calculation of dividend payout ratiothe dividend payout ratio can be calculated as the yearly dividend per share divided by the earnings per share eps or equivalently the dividends divided by net income as shown below dividend payout ratio dividends paid net income begin aligned text dividend payout ratio frac text dividends paid text net income end aligned dividend payout ratio net incomedividends paid alternatively the dividend payout ratio can also be calculated as dividend payout ratio 1 retention ratio begin aligned text dividend payout ratio 1 text retention ratio end aligned dividend payout ratio 1 retention ratio on a per share basis the retention ratio can be expressed as retention ratio eps dps eps where eps earnings per share dps dividends per share begin aligned text retention ratio frac text eps text dps text eps textbf where text eps text earnings per share text dps text dividends per share end aligned retention ratio epseps dps where eps earnings per sharedps dividends per share the dividend payout ratio indicates how much money a company returns to shareholders versus how much it keeps to reinvest in growth pay off debt or add to cash reserves if you are given the sum of the dividends over a certain period and the outstanding shares you can calculate the dividends per share dps suppose you are invested in a company that paid 5 million last year with five million shares outstanding on microsoft excel enter suppose the company had a net income of 50 million last year the formula for earnings per share is net income preferred dividends shares outstanding enterfinally calculate the payout ratio by entering investors use the ratio to gauge whether dividends are appropriate and sustainable the payout ratio depends on the sector for example startups may have a low or no payout ratio because they are more focused on reinvesting their income to grow the business understanding the dividend payout ratiothe dividend payout ratio is 0 for companies that do not pay dividends and 100 for companies that pay out their entire net income as dividends several considerations go into interpreting the dividend payout ratio most importantly the company s level of maturity in 2012 and after nearly twenty years since its last paid dividend apple aapl began to pay a dividend when the new chief executive officer ceo felt the company s enormous cash flow made a 0 payout ratio difficult to justify 12 since higher dividends are often a sign that a company has moved past its initial growth stage a higher payout ratio means share prices are unlikely to appreciate rapidly the payout ratio is also useful for assessing a dividend s sustainability companies are extremely reluctant to cut dividends because it can drive the stock price down and reflect poorly on management s abilities if a company s payout ratio is over 100 it returned more money to shareholders in the year it earned and may be forced to lower the dividend or stop paying it altogether since overpayment is likely to be unsustainable a company may endure a bad year without suspending payouts it is often in its interest to do so because investors will expect a dividend not paying one can be an extremely negative signal about where the company is headed investors react badly to companies paying lower than expected dividends which is why share prices fall when dividends are cut long term trends in the payout ratio also matter a steadily rising ratio could indicate a healthy maturing business but a spiking one could mean the dividend is heading into unsustainable territory the retention ratio is a converse concept to the dividend payout ratio the dividend payout ratio evaluates the percentage of profits earned that a company pays out to its shareholders while the retention ratio represents the percentage of profits earned that are retained by or reinvested in the company dividend payouts vary widely by industry and like most ratios they are most useful to compare within a given industry for example real estate investment trusts reits are legally obligated to distribute at least 90 of earnings to shareholders as they enjoy special tax exemptions 3 master limited partnerships mlps tend to have high payout ratios as well dividends are not the only way companies can return value to shareholders therefore the payout ratio does not always provide a complete picture the augmented payout ratio incorporates share buybacks into the metric which is calculated by dividing the sum of dividends and buybacks by net income for the same period if the result is too high it can indicate an emphasis on short term boosts to share prices at the expense of reinvestment and long term growth another adjustment that can be made to provide a more accurate picture is to subtract preferred stock dividends for companies that issue preferred shares dividend payout ratio vs dividend yield | |
when comparing these two measures it s important to know that the dividend yield tells you what the simple rate of return is in the form of cash dividends to shareholders but the dividend payout ratio represents how much of a company s net earnings are paid out as dividends | while the dividend yield is the more commonly known and scrutinized term many believe the dividend payout ratio is a better indicator of a company s ability to distribute dividends consistently in the future the dividend payout ratio is highly connected to a company s cash flow the dividend yield shows how much a company paid out in dividends a year as a percentage of the stock price it shows for a dollar spent on the stock how much you will yield in dividends the yield is presented as a percentage not as an actual dollar amount this makes it easier to see how much return per dollar invested the shareholder receives through dividends the yield is calculated as dividend yield annual dividends per share price per share begin aligned text dividend yield frac text annual dividends per share text price per share end aligned dividend yield price per shareannual dividends per share for example a company that paid 10 in annual dividends per share on a stock trading at 100 per share has a dividend yield of 10 you can also see that an increase in share price reduces the dividend yield percentage and vice versa for a price decline companies that make a profit at the end of a fiscal period can do several things with the profit they earn they can pay it to shareholders as dividends they can retain it to reinvest in the growth of its business or they can do both the portion of the profit that a company chooses to pay out to its shareholders can be measured with the payout ratio for example apple aapl has paid 0 87 per share in dividends over the trailing 12 months ttm as of jan 3 2022 1 apple s eps over the ttm has been as follows the ttm eps for apple is 5 67 as of jan 3 2022 thus its payout ratio is 15 3 or 0 87 divided by 5 67 | |
why is the dividend payout ratio important | the dividend payout ratio is a key financial metric used to determine the sustainability of a company s dividend payment program it is the amount of dividends paid to shareholders relative to the total net income of a company | |
how do you calculate the dividend payout ratio | it is commonly calculated on a per share basis by dividing annual dividends per common share by earnings per share | |
is a high dividend payout ratio good | a high dividend payout ratio is not always valued by active investors an unusually high dividend payout ratio can indicate that a company is trying to mask a bad business situation from investors by offering extravagant dividends or that it simply does not plan to aggressively use working capital to expand | |
when comparing the two measures of dividends it s important to know that the dividend yield tells you what the simple rate of return is in the form of cash dividends to shareholders but the dividend payout ratio represents how much of a company s net earnings are paid out as dividends | the bottom linesome companies decide to reward their shareholders by sharing their financial success this happens through dividends which are paid at regular intervals to shareholders throughout the year the dividend payout ratio is the total amount of dividends that companies pay to their eligible investors expressed as a percentage | |
what is dividend per share dps | dividend per share dps is the sum of declared dividends issued by a company for every ordinary share outstanding the figure is calculated by dividing the total dividends paid out by a business including interim dividends over a period of time usually a year by the number of outstanding ordinary shares issued a company s dps is often derived using the dividend paid in the most recent quarter which is also used to calculate the dividend yield understanding dividend per share dps dps is an important metric to investors because the amount a firm pays out in dividends directly translates to income for the shareholder it is the most straightforward figure an investor can use to calculate their dividend payments from owning shares of a stock over time a consistent increase in dps over time can also give investors confidence that the company s management believes that its earnings growth can be sustained dps d sd s where d sum of dividends over a period usually a quarter or year sd special one time dividends in the period s ordinary shares outstanding for the period begin aligned text dps frac text d text sd text s textbf where text d text sum of dividends over a period usually text a quarter or year text sd text special one time dividends in the period text s text ordinary shares outstanding for the period end aligned dps sd sd where d sum of dividends over a period usuallya quarter or year sd special one time dividends in the periods ordinary shares outstanding for the period dividends over the entire year not including any special dividends must be added together for a proper calculation of dps including interim dividends special dividends are dividends that are only expected to be issued once and are therefore not included interim dividends are dividends distributed to shareholders that have been declared and paid before a company has determined its annual earnings if a company has issued common shares during the calculation period the total number of ordinary shares outstanding is generally calculated using the weighted average of shares over the reporting period which is the same figure used for earnings per share eps for example assume abc company paid a total of 237 000 in dividends over the last year during which there was a special one time dividend totaling 59 250 abc has 2 million shares outstanding so its dps is 237 000 59 250 2 000 000 0 09 per share special considerationsdps is related to several financial metrics that take into account a firm s dividend payments such as the payout ratio and retention ratio given the definition of payout ratio as the proportion of earnings paid out as dividends to shareholders dps can be calculated by multiplying a firm s payout ratio by its earnings per share a company s eps equal to net income divided by the number of outstanding shares is often easily accessible via the firm s income statement the retention ratio meanwhile refers to the opposite of the payout ratio as it instead measures the proportion of a firm s earnings retained and therefore not paid out as dividends the idea that the intrinsic value of a stock can be estimated by its future dividends or the value of the cash flows the stock will generate in the future makes up the basis of the dividend discount model the model typically takes into account the most recent dps for its calculation dividend per share examplesincreasing dps is a good way for a company to signal strong performance to its shareholders for this reason many companies that pay a dividend focus on adding to their dps so established dividend paying corporations tend to boast steady dps growth coca cola for example has paid a quarterly dividend since 1920 and has consistently increased annual dps since at least 1996 adjusting for stock splits 1similarly walmart has upped its annual cash dividend each year since it first declared a 0 05 dividend payout in march 1974 since 2015 the retail giant has added at least 4 cents each year to its dividend per share which was raised to 2 08 for walmart s fy 2019 2 | |
why is dividend per share dps important to investors | dps is an important metric to investors because the amount a firm pays out in dividends directly translates to income for the shareholder it is the most straightforward figure an investor can use to calculate their dividend payments from owning shares of a stock over time a consistent increase in dps over time can also give investors confidence that the company s management believes that its earnings growth can be sustained | |
how is dps calculated | dividends over the entire year not including any special dividends must be added together for a proper calculation of dps including interim dividends special dividends are dividends that are only expected to be issued once and are therefore not included interim dividends are dividends distributed to shareholders that have been declared and paid before a company has determined its annual earnings if a company has issued common shares during the calculation period the total number of ordinary shares outstanding is generally calculated using the weighted average of shares over the reporting period which is the same figure used for earnings per share eps | |
what is the retention ratio | the retention ratio also called the plowback ratio is the proportion of earnings kept back in the business as retained earnings it refers to the percentage of net income that is retained to grow the business rather than being paid out as dividends it is the opposite of the payout ratio which measures the percentage of profit paid out to shareholders as dividends this metric helps investors determine how much money a company is keeping to reinvest in the company s operations typically newer companies have high retention ratios as they are investing earnings back into the company to accelerate growth | |
what is a dividend policy | a dividend policy outlines how a company will distribute its dividends to its shareholders this policy details specifics about payouts including how often when and how much is distributed there are many types of dividend police including stable constant and residual policies investopedia crea taylorunderstanding dividendsbefore we jump into looking at divided policies let s talk about dividends dividends are a distribution of a portion of a company s earnings to its shareholders a company can choose to reinvest those earnings into itself to drive future growth or it can distribute those earnings to whoever owns equity in the company dividends are usually declared by a company s board of directors and are paid out on a per share basis to all shareholders who own the stock the decision to pay dividends is influenced by the company s profitability cash flow financial health and growth prospects all else being equity it s usually best or at least most attractive to investors if companies pay a consistent steady amount of dividends on a periodic basis for example investors generally prefer knowing they ll get 1 per share each quarter as opposed to getting a varying amount awarded each quarter however some investors may also prefer the potential of getting higher dividends at the risk of maybe getting lower dividends as well dividends usually vary based on the industry size and maturity of companies mature companies in stable industries may not need as much cash so they may be more likely to issue dividends growth oriented companies in capital intensive sectors like technology or biotechnology may prefer to hold onto their cash and not issue dividends in either case the company needs to have a policy that outlines what it plans to do we ll talk about that policy next | |
how a dividend policy works | some companies choose to reward their common stock shareholders by paying them a dividend a dividend is paid on a regular basis and usually represents a portion of the profits that these companies earn this gives shareholders a regular stream of income which is why dividend paying stocks are a favorite for some investors having a dividend policy in place is important for dividend paying companies this is a structure that highlights several key points including these decisions are made by a company s management team it must also decide what if any other factors may have to be put in place that would influence dividend payments an additional factor to consider includes providing shareholders with the option to take their dividends in cash or allowing them to reinvest them by purchasing additional shares through a dividend reinvestment program drip some researchers suggest the dividend policy is theoretically irrelevant because investors can sell a portion of their shares or portfolio if they need funds this is the dividend irrelevance theory which infers that dividend payouts minimally affect a stock s price types of dividend policiesa stable dividend policy is the easiest and most commonly used the goal of this policy is to provide shareholders with a steady and predictable dividend payout each year which is what most investors seek investors receive a dividend regardless of whether earnings are up or down the goal is to align the dividend policy with the long term growth of the company rather than with quarterly earnings volatility this approach gives the shareholder more certainty concerning the amount and timing of the dividend the primary drawback of the stable dividend policy is that investors may not see a dividend increase in boom years under the constant dividend policy a company pays a percentage of its earnings as dividends every year in this way investors experience the full volatility of company earnings if earnings are up investors get a larger dividend and if earnings are down investors may not receive a dividend the primary drawback to the method is the volatility of earnings and dividends it is difficult to plan financially when dividend income is highly volatile the residual dividend policy is also highly volatile but some investors see it as the only acceptable dividend policy with a residual dividend policy the company pays out what dividends remain after the company has paid for capital expenditures capex and working capital this approach is volatile but it makes the most sense in terms of business operations investors do not want to invest in a company that justifies its increased debt with the need to pay dividends despite the suggestion that the dividend policy may be irrelevant it is income for shareholders company leaders are often the largest shareholders and have the most to gain from a generous dividend policy some companies decide not to pay dividends at all particularly those in high growth industries or early stage startups reinvesting profits to fuel expansion these companies prioritize reinvestment of earnings into research development acquisitions or debt reduction rather than distributing dividends by forgoing dividends the company aims to accelerate growth and enhance shareholder value through a higher future stock price rather than income generation note that this type of policy may actually still be documented a hybrid dividend policy combines elements of the different policies above for example a manufacturing company might adopt a hybrid policy by offering a stable base dividend supplemented by additional payouts based on residual earnings from exceptional periods or one time gains this approach allows flexibility so that investors can expect a baseline amount of dividends but also realize they may be awarded higher dividends if operations go well importance of dividend policiesa dividend policy is a financial guide that helps management issue dividends this clarity is essential because it sets expectations among investors about what potential income they might get from their investments for income oriented investors like retirees or those who are risk averse a predictable dividend stream provides assurance and helps them plan their finances like they might want or need it also attracts a certain segment of investors who prefer stable income over capital appreciation second a well defined dividend policy enhances transparency and credibility in the eyes of investors a company is not required to issue dividends and it may choose to stop paying a dividend at any time by committing to a specific dividend policy companies demonstrate their financial discipline and intention to not only generate consistent cash flows for the company but to distribute this cash next a dividend policy can influence the company s cost of capital and shareholder value consistently paying dividends or increasing dividends over time can enhance the company s attractiveness to investors in the long run this can lower its cost of equity and increase the net proceeds of what it s able to raise for future share issuances this is because dividends provide tangible returns to shareholders making the stock more appealing meaning the company can sell new shares in the future at higher offerings last a dividend policy helps set a company s overall corporate strategy for mature companies in stable industries a dividend policy could reflect the fact that the company isn t looking to scale and is probably going to maintain its operations on the other hand growth oriented companies may choose not to pay dividends and reinvest earnings into expanding operations or acquiring new technologies in both cases the dividend policy communicates this strategic plan and can be somewhat of a roadmap for management when thinking about future plans regarding cash example of a dividend policykinder morgan kmi shocked the investment world when in 2015 it cut its dividend payout by 75 a move that saw its share price tank but many investors found the company on solid footing and making sound financial decisions for their future in this case cutting its dividend actually worked in its favor six months after the cut kinder morgan saw its share price rise almost 25 in early 2019 the company raised its dividend payout again by 25 which helped to reinvigorate investor confidence in the energy company 12 | |
what are dividends | dividends are paid by companies to their common shareholders they represent a portion of the corporate earnings or profits that companies want to share with their investors dividends are paid at regular intervals either monthly quarterly or annually as such they provide a regular stream of income for investors dividends are commonly offered by companies whose primary focus isn t growth major companies like coca cola apple microsoft and exxon mobil | |
what are the main types of dividends | dividend paying companies have several options when it comes to the type of dividend they offer shareholders they can pay dividends in cash which is the most common type or they can offer stock dividends give shareholders additional existing shares in the company other less common types of dividends are the scrip dividend property dividend and special dividend | |
do all companies pay dividends to their shareholders | no not all companies pay dividends to their shareholders and they are not mandatory a company s board of directors decides what to do with its profits some choose to reinvest the money they earn back into the company to fuel growth these companies have no dividend policy others choose to take a portion of the profits and pay dividends to their investors on a regular basis the bottom linedividend paying stocks can give you a steady stream of income while adding value to your portfolio but before you jump in make sure you review the dividend policies of certain companies these policies are set by corporate management and highlight how much to pay when and how often | |
what is a dividend rate | the dividend rate is the total expected dividend payments from an investment fund or portfolio expressed on an annualized basis plus any additional non recurring dividends that an investor may receive during that period depending on the company s preferences and strategy the dividend rate can be fixed or adjustable the dividend rate is closely related to dividend yield and is sometimes used interchangeably understanding dividend ratesthe dividend rate is an estimate of the dividend only return of an investment such as on a stock or mutual fund assuming the dividend amount is not raised or lowered the rate will rise when the price of the stock falls and conversely it will fall when the price of the stock rises because dividend rates change relative to the stock price it can often look unusually high for stocks that are falling in value quickly new companies that are relatively small but still growing quickly may pay a lower average dividend than mature companies in the same sectors in general mature companies that aren t growing very quickly pay the highest dividend yields consumer non cyclical stocks that market staple items or utilities are examples of entire sectors that pay the highest average yield | |
how is a dividend rate calculated | the calculation of the dividend rate of an investment fund or portfolio involves multiplying the most recent periodic dividend payments by the number of payment periods in one year for example if a fund of investments pays a dividend of 50 cents quarterly and also pays an extra dividend of 12 cents per share because of a nonrecurring event from which the company benefited the dividend rate is 2 12 per year 50 cents x 4 quarters 12 cents 2 12 companies that generate substantial cash flows generally pay out dividends conversely businesses with rapid growth typically reinvest any cash generated back into the company and not to paying shareholder dividends cash intensive companies that produce essential consumer products such as food beverages and household items and those who provide health care for example usually spend less to grow their companies therefore these businesses are more likely to distribute a percentage of income to shareholders as dividends dividend payout ratiocompanies that pay dividends often prefer to maintain or slowly grow their dividend rates as a demonstration of stability and to reward shareholders businesses that cut dividends may be entering a financially weaker state that most times is accompanied by a corresponding drop in the stock price the dividend payout ratio is one way to assess the strength of a company s dividends the calculation for a payout ratio is to divide dividend by net income and then multiply the sum by 100 when the payout ratio is lower it is preferable as the company will be disbursing less of its net income to shareholder dividend payments further as the business is paying out less the firm and the payments are more sustainable conversely companies with high payout ratios may have difficulty maintaining dividend payments especially if an unforeseen event happens dividend aristocratsincome seeking investors often search for companies that demonstrate long histories of steadily growing dividend payments these companies dubbed dividend aristocrats by definition must exhibit at least 25 years of consistent and significant annual dividend increases dividend aristocrats typically orbit among sectors like consumer products and health care which tend to thrive in different economic climates kiplinger identified 65 high dividend stocks to watch out for in 2020 some of the names that made the list include medical image machine maker roper technologies paint maker sherwin williams and alcohol distributor brown forman 1some of the best investment apps include features or functions that enable users to identify which companies offer dividend payouts real world exampleretail giant walgreens boots alliance wba the largest retail pharmacy in both the united states and europe stands out as a top dividend aristocrat its pharmacy business performed well with 5 2 comparable sales growth and 5 9 comparable prescription growth given the company s history of outperformance analysts predict 8 10 annualized growth in earnings per share over the next several years furthermore returns will likely be boosted by walgreens s 3 93 dividend yield as well as a rising valuation 2 | |
what is dividend recapitalization | a dividend recapitalization also known as a dividend recap happens when a company takes on new debt in order to pay a special dividend to private investors or shareholders this usually involves a company owned by a private investment firm which can authorize a dividend recapitalization as an alternative to the company declaring regular dividends based on earnings understanding dividend recapitalizationthe dividend recap has seen explosive growth primarily as an avenue for private equity firms to recoup some or all of the money they used to purchase their stake in a business the practice is generally not looked upon favorably by creditors or common shareholders as it reduces the credit quality of the company while benefiting only a select few prior to exiting a portfolio company some private equity firms and activist investors opt to incur additional debt on the balance sheet of the company in order to deliver early payments to their limited partners and or managers this reduces the risk for the firms and their shareholders this special dividend in addition to not funding the portfolio company s growth weighs further on its balance sheet in the form of leverage significant new debt has the potential to become a drag in adverse market conditions following the company s exit yet portfolio companies selected for dividend recapitalizations have historically been generally healthy and able to withstand additional debt this is usually due to new developments pushed for by private equity sponsors which produce stronger cash flows the healthy cash flows enable private equity sponsors to get immediate partial returns on their investment since other avenues of liquidity such as public markets and mergers take more time and effort dividend recapitalizations reached a high during the 2006 2007 buyout boom example of a dividend recapitalizationin december 2017 dover corp announced that it would spin off its oilfield services business wellsite wellsite would become a separate company focused on specialized equipment specifically artificial lifts which squeeze the final drops from oil wells after they ve been fully drilled as part of the creation of this distinct entity parent company dover planned a dividend recapitalization of 700 million leaving wellsite with long term debt of 3 4 x ebitda while regular dividends go to the preferred and common shareholders in this example the dividend funded a 1 billion buyback on dover s behalf supported by activist investor third point llc | |
what is the dividends received deduction drd | the dividends received deduction drd is a federal tax deduction in the united states that is given to certain corporations that get dividends from related entities the amount of the dividend that a company can deduct from its income tax is tied to how much ownership the company has in the dividend paying company however there are criteria that corporations must meet in order to qualify for the dividends received deduction drd | |
how the dividends received deduction drd works | the dividends received deduction allows a company that receives a dividend from another company to deduct that dividend from its income and reduce its income tax accordingly however several technical rules apply that must be followed for corporate shareholders to be entitled to the drd the amount of drd that a company may claim depends on its percentage of ownership in the company paying the dividend the tax cuts and jobs act tcja made major changes to the taxation of corporations including reducing the drd percentages for dividends received from domestic corporations in tax years beginning after dec 31 2017 if the corporation receiving the dividend owns less than 20 of the corporation distributing the dividend the receiving corporation can deduct within certain limits 50 of the dividends received subject to certain limits the receiving corporation can deduct 65 of the dividends received if it owns 20 or more of the distributing corporation s stock however the 50 or 65 deduction limit does not apply if a corporation has a net operating loss nol for the given tax year 1the deduction received seeks to alleviate the potential consequences of triple taxation triple taxation occurs when the same income is taxed in the hands of the company paying the dividend then in the hands of the company receiving the dividend and again when the ultimate shareholder is in turn paid a dividend small business investment companies are allowed to deduct 100 of the dividends they receive from taxable domestic corporations 1 special considerationscertain types of dividends are excluded from the drd and corporations cannot claim a deduction for them for example corporations cannot take a deduction for dividends received from a real estate investment trust reit if the company distributing the dividend is exempt from taxation under section 501 or 521 of the internal revenue code for the tax year of the distribution or the preceding year then the receiving company cannot take a deduction for the dividends received a corporation cannot take a deduction on capital gain dividends received from a regulated investment company 2 dividends from foreign corporations have different deduction rules than those for domestic corporations in most cases corporations can deduct 100 of the foreign source portion of dividends from 10 owned foreign corporations corporations must hold the foreign corporation stock for at least 365 days to qualify for the deduction 1 example of a dividends received deduction drd assume that abc inc owns 60 of its affiliate def inc abc has a taxable income of 10 000 and a dividend of 9 000 from def thus it would be entitled to a drd of 5 850 or 65 of 9 000 note that there are certain limitations on the total deduction for dividends a corporation may claim in some cases the corporation will need to determine if it has a net operating loss nol by calculating the drd without the 50 or 65 of the taxable income limit for more information see irs publication 542 or the instructions included in form 1120 schedule c or the applicable schedule of your income tax return | |
what is the dividends received deduction drd | the dividends received deduction drd is a federal tax deduction in the united states that is given to certain corporations that get dividends from related entities the amount of the dividend that a company can deduct from its income tax is tied to how much ownership the company has in the dividend paying company however there are criteria that corporations must meet in order to qualify for the dividends received deduction drd | |
how the dividends received deduction drd works | the dividends received deduction allows a company that receives a dividend from another company to deduct that dividend from its income and reduce its income tax accordingly however several technical rules apply that must be followed for corporate shareholders to be entitled to the drd the amount of drd that a company may claim depends on its percentage of ownership in the company paying the dividend the tax cuts and jobs act tcja made major changes to the taxation of corporations including reducing the drd percentages for dividends received from domestic corporations in tax years beginning after dec 31 2017 if the corporation receiving the dividend owns less than 20 of the corporation distributing the dividend the receiving corporation can deduct within certain limits 50 of the dividends received subject to certain limits the receiving corporation can deduct 65 of the dividends received if it owns 20 or more of the distributing corporation s stock however the 50 or 65 deduction limit does not apply if a corporation has a net operating loss nol for the given tax year 1the deduction received seeks to alleviate the potential consequences of triple taxation triple taxation occurs when the same income is taxed in the hands of the company paying the dividend then in the hands of the company receiving the dividend and again when the ultimate shareholder is in turn paid a dividend small business investment companies are allowed to deduct 100 of the dividends they receive from taxable domestic corporations 1 special considerationscertain types of dividends are excluded from the drd and corporations cannot claim a deduction for them for example corporations cannot take a deduction for dividends received from a real estate investment trust reit if the company distributing the dividend is exempt from taxation under section 501 or 521 of the internal revenue code for the tax year of the distribution or the preceding year then the receiving company cannot take a deduction for the dividends received a corporation cannot take a deduction on capital gain dividends received from a regulated investment company 2 dividends from foreign corporations have different deduction rules than those for domestic corporations in most cases corporations can deduct 100 of the foreign source portion of dividends from 10 owned foreign corporations corporations must hold the foreign corporation stock for at least 365 days to qualify for the deduction 1 example of a dividends received deduction drd assume that abc inc owns 60 of its affiliate def inc abc has a taxable income of 10 000 and a dividend of 9 000 from def thus it would be entitled to a drd of 5 850 or 65 of 9 000 note that there are certain limitations on the total deduction for dividends a corporation may claim in some cases the corporation will need to determine if it has a net operating loss nol by calculating the drd without the 50 or 65 of the taxable income limit for more information see irs publication 542 or the instructions included in form 1120 schedule c or the applicable schedule of your income tax return | |
what is the dividend yield | the dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price the reciprocal of the dividend yield is the total dividends paid net income which is the dividend payout ratio investopedia michela buttignolunderstanding dividendsbefore we jump into looking at the dividend yield let s briefly explore dividends dividends are payments made by a corporation to its shareholders usually derived from the company s profits these payments represent a portion of the company s earnings that is distributed to its investors as a reward for their ownership dividends can be issued in various forms including cash payments additional shares of stock or other property the most common form is cash dividends which is what this article focuses on companies that generate consistent and stable profits may be more likely to pay regular dividends in contrast companies in high growth phases may prefer to reinvest profits back into the business rather than distribute them to shareholders the dividend policy can therefore provide insights into a company s financial health and management s confidence in future earnings a company s dividend history also provides insights into management s future plans i e reinvest for growth or reward current investors absolute dividend dollars may not tell the entire story for example two companies may each issue a 1 quarterly dividend and have the exact same market capitalization however if one company s stock is valued at 100 and the other s is valued at 300 one company is paying significantly more relative to what the company may be worth for this reason it s worth now moving into the dividend yield understanding the dividend yieldthe dividend yield is an estimate of the dividend only return of a stock investment assuming the dividend is not raised or lowered the yield will rise when the price of the stock falls conversely it will fall when the price of the stock rises because dividend yields change relative to the stock price it can often look unusually high for stocks that are falling in value quickly new companies that are relatively small but still growing quickly may pay a lower average dividend than mature companies in the same sectors in general mature companies that aren t growing very quickly pay the highest dividend yields in some cases the dividend yield may not provide that much information about what kind of dividend the company pays for example the average dividend yield in the market can be very high amongst real estate investment trusts reits however those are the yields from ordinary dividends which are different than qualified dividends in that the former is taxed as regular income while the latter is taxed as capital gains along with reits master limited partnerships mlps and business development companies bdcs typically can also have very high dividend yields the structure of these companies is such that the u s treasury requires them to pass on the majority of their income to their shareholders this is referred to as a pass through process and it means that the company doesn t have to pay income taxes on profits that it distributes as dividends a high dividend yield may not always be great for example a company may be better off retaining cash to expand its company so investors are rewarded with higher capital gains via stock price appreciation calculating the dividend yieldthe formula for dividend yield is as follows dividend yield annual dividends per share price per share begin aligned text dividend yield frac text annual dividends per share text price per share end aligned dividend yield price per shareannual dividends per share the dividend yield can be calculated from the last full year s financial report alternatively investors can also add the last four quarters of dividends which captures the trailing 12 months of dividend data using a trailing dividend number is acceptable but it can make the yield too high or too low if the dividend has recently been cut or raised because dividends are paid quarterly many investors will take the last quarterly dividend multiply it by four and use the product as the annual dividend for the yield calculation this approach will reflect any recent changes in the dividend but not all companies pay an even quarterly dividend some firms especially outside the u s pay a small quarterly dividend with a large annual dividend if the dividend calculation is performed after the large dividend distribution it will give an inflated yield finally some companies pay a dividend more frequently than quarterly a monthly dividend could result in a dividend yield calculation that is too low when deciding how to calculate the dividend yield an investor should look at the history of dividend payments to decide which method will give the most accurate results advantages and disadvantages of dividend yieldshistorical evidence suggests that a focus on dividends may amplify returns rather than slow them down for example according to analysts at hartford funds 69 of the total returns from the s p 500 are from dividends this assumption is based on the fact that investors are likely to reinvest their dividends back into the s p 500 which then compounds their ability to earn more dividends in the future note that any historical statistics about dividends may not be reflective of dividends in the future a company s ability to consistently pay and increase dividends is often a strong indicator of its financial health and stability companies that generate sufficient profits and cash flow are more likely to distribute dividends to their shareholders therefore a stable or growing dividend yield can be a signal that a company is in good financial standing regular dividend payments can also boost shareholder confidence signaling that management is confident in the company s future prospects and earnings potential this consistent payout demonstrates that the company generates sufficient profits to share with its shareholders not only is this another signal of good financial health it can be an indicator that management has a plan for the future and believes it does not need cashflow for future success high dividend yields may be attractive but they may also come at the expense of the potential growth of the company it can be assumed that every dollar a company is paying in dividends to its shareholders is a dollar that the company is not reinvesting to grow and generate more capital gains even without earning any dividends shareholders have the potential to earn higher returns if the value of their stock increases while they hold it as a result of company growth it s not recommended that investors evaluate a stock based on its dividend yield alone dividend data can be old or based on erroneous information many companies have a very high yield as their stock is falling if a company s stock experiences enough of a decline it may reduce the amount of the dividend or eliminate it investors should exercise caution when evaluating a company that looks distressed and has a higher than average dividend yield because the stock s price is the denominator of the dividend yield equation a strong downtrend can increase the quotient of the calculation dramatically may amplify returnsindicates company s financial strengthboosts shareholder and management confidencemay stunt growthmay be reduced or eliminated when times get toughdowntrend can increase dividend quotientdividend yield vs dividend payout ratio | |
when comparing measures of corporate dividends it s important to note that the dividend yield tells you what the simple rate of return is in the form of cash dividends to shareholders | however the dividend payout ratio represents how much of a company s net earnings are paid out as dividends while the dividend yield is the more commonly used term many believe the dividend payout ratio is a better indicator of a company s ability to distribute dividends consistently in the future the dividend payout ratio is highly connected to a company s cash flow the dividend yield shows how much a company has paid out in dividends over the course of a year the yield is presented as a percentage not as an actual dollar amount this makes it easier to see how much return the shareholder can expect to receive per dollar they have invested dividends can be awarded as additional stock cash or other forms of consideration keep this in mind when calculating the value of dividends received tax considerations of dividendsit d be remiss to talk about dividend yield without highlighting the tax treatment of dividends the tax treatment of dividend income varies significantly across different jurisdictions and can ultimately influence investors net returns for example qualified dividends are taxed in the united states at a lower rate than ordinary income with rates ranging from 0 to 20 depending on the investor s tax bracket this preferential treatment is designed to encourage investment in dividend paying stocks non qualified dividends however are taxed at the individual s regular income tax rate which can be substantially higher the reason this is important to note is that the dividend yield may not ultimately be an investor s rate of return if the taxpayer has a high individual tax rate the investor s true net take home proceeds may be 20 less than the dividend yield just as capital gains can vary based on the retirement vehicle in which they are held dividends and their associated dividend yield may be impacted by taxes dividend yields and inflationdividend yields can serve as an effective hedge against inflation helping investors preserve their purchasing power over time when companies pay dividends they provide a regular income stream that can be particularly valuable during periods of rising prices for instance as a company s revenue grows potentially due to charging higher prices to capture inflationary pressure that growth could be passed along to investors however this is only true when dividend payments increase should a company decide to retain cash flow for growth purposes a stable dividend yield may be unfavorable especially during inflationary periods for instance during the global pandemic when the united states saw unprecedented government stimulus that resulted in high inflation corporations that did not increase their dividend yield actually eroded the purchasing power of those dividends examples of dividend yieldsuppose company a s stock is trading at 20 and pays annual dividends of 1 per share to its shareholders suppose that company b s stock is trading at 40 and also pays an annual dividend of 1 per share this means company a s dividend yield is 5 1 20 while company b s dividend yield is only 2 5 1 40 assuming all other factors are equivalent an investor looking to use their portfolio to supplement their income would likely prefer company a over company b because it has double the dividend yield to calculate the dividend yield for a company like microsoft you would follow these steps | |
what does the dividend yield tell you | the dividend yield is a financial ratio that tells you the percentage of a company s share price that it pays out in dividends each year for example if a company has a 20 share price and pays a dividend of 1 per year its dividend yield would be 5 if a company s dividend yield has been steadily increasing this could be because they are increasing their dividend because their share price is declining or both depending on the circumstances this may be seen as either a positive or a negative sign by investors | |
why is dividend yield important | some investors such as retirees are heavily reliant on dividends for their income for these investors the dividend yield of their portfolio could have a meaningful effect on their personal finances making it very important for these investors to select dividend paying companies with long track records and clear financial strength for other investors dividend yield may be less significant such as for younger investors who are more interested in growth companies that can retain their earnings and use them to finance their growth | |
is a high dividend yield good | yield oriented investors will generally look for companies that offer high dividend yields but it is important to dig deeper in order to understand the circumstances leading to the high yield one approach taken by investors is to focus on companies that have a long track record of maintaining or raising their dividends while also verifying that those companies have the underlying financial strength to continue paying dividends well into the future to do so investors can refer to other metrics such as the current ratio and the dividend payout ratio | |
which stock has the highest dividend yield | this will depend on the timeframe you look at dividend yields change daily as the prices of shares that pay dividends rise or fall some stocks with very high dividend yields may be the result of a recent downturn in share price and oftentimes that dividend will be slashed or eliminated by the managers if the stock price does not soon recover the bottom linemany stocks pay dividends to reward their shareholder high yielding dividend stocks can be a good buy for some value investors but may also signal that a stock s share price has recently fallen by quite a bit making the legacy dividend comparatively higher in relation to the share price a high dividend yield could also suggest that a company is distributing too much profits as dividends rather than investing in growth opportunities or new projects correction january 10 2023 this article was corrected from a previous version that incorrectly stated the formula for the dividend payout ratio | |
what is documentary collection | documentary collection is a form of trade finance in which an exporter is paid for its goods by an importer after the two parties banks exchange the required documents the exporter s bank collects funds from the importer s bank in exchange for documents releasing title to the shipped merchandise usually after the goods arrive at the importer s location 1understanding documentary collectiondocumentary collection is so called because the exporter receives payment from the importer in exchange for the shipping documents shipping documents are required for the buyer to clear the goods through customs and take delivery 1 they include a commercial invoice certificate of origin insurance certificate and packing list a key document in a documentary collection is the bill of exchange or draft which is a formal demand for payment from the exporter to importer 1documentary collection is less common than other forms of trade finance such as letters of credit and advance payment it is less expensive than some methods but also somewhat riskier so is generally limited to transactions between parties who have developed trust or are located in countries with strong legal systems and contract enforcement 1a sight draft reduces the exporter s risk because the buyer s bank will not release the documents without payment from the buyer but neither side s bank assumes any financial responsibility in a documentary collection transaction 2two types of documentary collectiondocumentary collections falls into two basic categories depending on when the payment is made to the exporter steps in export and documentary collectionbelow is the step by step process other considerations the risks of documentary collectionsthe exporter s risk is higher with a time draft versus a sight draft as the buyer s bank would have released the documents with the buyer s acceptance of the time draft meaning the buyer could already have possession of the merchandise by the time payment is due the seller s risk is limited with a sight draft this is because the buyer s bank would not release the documents needed to take possession of the goods before payment is made at worst the seller would have to find another buyer or pay to have the goods shipped back | |
what is the dodd frank wall street reform and consumer protection act | the dodd frank wall street reform and consumer protection act commonly known as the dodd frank act or dodd frank is legislation that was passed by the u s congress in response to financial industry behavior that led to the financial crisis of 2007 2008 it sought to make the u s financial system safer for consumers and taxpayers named for sponsors sen christopher j dodd d conn and rep barney frank d mass the act contains numerous provisions spelled out over 848 pages that were to be implemented over a period of several years 1understanding the dodd frank actthe dodd frank act is a massive piece of financial reform legislation that was passed in 2010 during the obama administration 1it established a number of new government agencies tasked with overseeing the various components of the law and by extension various aspects of the financial system the 2007 2008 financial crisis is perhaps the worst economic catastrophe to befall the country and the world since the wall street crash in 1929 broadly speaking it was caused by greed driven behavior and lax oversight of financial institutions the loosening of financial industry regulations in the decades leading up to 2007 allowed various types of institutions in the u s financial services industry to lend money in ways that were riskier than ever before the housing sector in particular experienced massive growth that couldn t be supported the bubble burst sending the banking industry and global stock markets into a downfall it created the worst global recession in generations dodd frank was created to keep anything similar from ever happening again the dodd frank wall street reform and consumer protection act was intended to prevent another financial crisis like the one in 2007 2008 components of the dodd frank acthere are some of the law s key provisions and how they work the effort to roll back the dodd frank act | |
when donald trump was elected president in 2016 he pledged to repeal dodd frank siding with critics the u s congress passed the economic growth regulatory relief and consumer protection act which rolled back significant portions of the dodd frank act | it was signed into law by then president trump on may 24 2018 9these are some of the provisions of that law and some of the areas in which previous standards were loosened after joseph biden was elected president in 2020 the cfpb focused on rescinding rules from the trump era that were in direct conflict with the charter of the cfpb the biden administration also announced its intent to reestablish rules against other forms of predatory lending such as payday loans on june 30 2023 bided signed a law to overturn the occ s payday lending regulations 10 additionally subprime auto loan practices are being addressed by the cfpb 11criticism of the dodd frank actproponents of dodd frank believed that the law would prevent the economy from experiencing a crisis like that of 2007 2008 and protect consumers from many of the abuses that contributed to the crisis detractors however have argued that the law could harm the competitiveness of u s firms relative to their foreign counterparts in particular they contend that its regulatory compliance requirements unduly burden community banks and smaller financial institutions despite the fact that they played no role in causing the financial crisis 12such financial world notables as former treasury secretary larry summers blackstone group l p bx ceo stephen schwarzman activist carl icahn and jpmorgan chase co jpm ceo jamie dimon also argued that while each institution is undoubtedly safer due to the capital constraints imposed by dodd frank the constraints make for a more illiquid market overall 1314the lack of liquidity can be especially detrimental in the bond market where all securities are not marked to market and many bonds lack a constant supply of buyers and sellers the higher reserve requirements under dodd frank mean that banks must keep a higher percentage of their assets in cash this decreases the amount that they are able to hold in marketable securities 1in effect this limits the bond market making role that banks have traditionally undertaken with banks unable to play the part of a market maker prospective buyers are likely to have a harder time finding counteracting sellers more importantly prospective sellers may find it more difficult to find counteracting buyers | |
what was the purpose of the dodd frank act | dodd frank was intended to curb the extremely risky financial industry activities that led to the financial crisis of 2007 2008 its goal was and still is to protect consumers and taxpayers from egregious practices like predatory lending | |
is the dodd frank act still in effect | yes it is however its regulatory strength was diluted with the passage of the economic growth regulatory relief and consumer protection act in 2018 still certain aspects such as the bank stress tests it called for are in use today the federal reserve publishes stress test results regularly 15 | |
what are some criticisms of the dodd frank act | detractors of the dodd frank act have argued that the law could harm the competitiveness of u s firms relative to their foreign counterparts in particular critics contend that its regulatory compliance requirements unduly burden community banks and smaller financial institutions despite the fact that they played no role in causing the financial crisis several financial world notables have also argued that while each institution is undoubtedly safer due to the capital constraints imposed by dodd frank the constraints also make for a more illiquid market overall | |
what was the impact of the 2018 rollback of dodd frank regulations | under the dodd frank rules banks with 50 billion in assets were subject to more strenuous capital and liquidity requirements but the new law passed in 2018 increased the asset threshold to 250 billion this change relaxed the regulations for smaller and medium sized banks when silicon valley bank collapsed in march 2023 observers argued that the lack of regulatory scrutiny on financial institutions of this size played a key role in the bank s failure 16the bottom linethe dodd frank act enacted in 2010 was a direct response to the financial crisis of 2007 2008 and the ensuing government bailouts under the troubled asset relief program tarp this law established a wide range of reforms throughout the entire financial system with the purpose of preventing a repeat of the 2007 2008 crisis and to prevent further government bailouts the dodd frank act also included additional protections for consumers although the trump administration reversed and weakened several aspects of the dodd frank act particularly those affecting consumers the biden administration planned to reestablish and strengthen the previous reversals to protect individuals who may be subject to predatory lending practices in industries such as for profit education and automobiles | |
what are dogs of the dow | dogs of the dow is an investment strategy that attempts to beat the dow jones industrial average djia each year by leaning portfolios toward high yield investments the general concept is to allocate money to the 10 highest dividend yielding blue chip stocks among the 30 components of the djia this strategy requires rebalancing at the beginning of each calendar year 1understanding dogs of the dowbecause the dow is one of the oldest and most widely followed indexes in the world and generally is seen as a barometer for the broader market it is not uncommon for market strategists to base investing techniques on some components of the djia the main reason to follow the dogs is that it presents a straightforward formula designed to perform roughly in line with the dow though not an entirely new concept this strategy first became a popular fixture in 1991 following the publication of michael b o higgins book beating the dow in the book o higgins also coined the name dogs of the dow 1dogs of the dow methodologydogs of the dow relies on the premise that blue chip companies do not alter their dividend to reflect trading conditions and therefore the dividend is a measure of the average worth of the company in contrast the stock price does fluctuate throughout the business cycle 1this should mean that companies with a high dividend relative to stock price are near the bottom of their business cycle so their stock price likely would increase faster than companies with low dividend yields in this scenario an investor reinvesting in high dividend yielding companies annually would hope to outperform the overall market there are many ways to purchase these securities you can hand pick individual stocks and build your own portfolio invest directly in the dow through exchange traded funds etfs or you can follow the dogs of the dow strategy whose stocks offer better yields than the dow as a whole often in fact the dogs have been able to outperform the dow over the course of the year the 2023 dogs of the dow are listed below 2 | |
how the dogs of the dow strategy works | the idea is to make stock picking somewhat easy and relatively safe the latter because the universe is limited to blue chip stocks as a tactic dogs of the dow goes like this after the stock market closes on the last day of the year select the 10 highest dividend yielding stocks in the djia then on the first trading day of the new year invest an equal dollar amount in each of them hold the portfolio for a year then repeat the process at the beginning of each subsequent year for most nonprofessionals though investing is never that simple especially with the myriad of strategies out there so it behooves the average individual investor to understand what they are doing with their money hence dogs of the dow tools abound just browse the internet to see dogs of the dow opinions commentary analyses calculators charts forecasts and stock screeners there s even a dogs of the dow website because this is intended to be a low maintenance long term strategy that mimics the performance of the djia it shouldn t be surprising that the long term results are similar there have been years when the dow has outperformed the dogs and vice versa but its performance over time is impressive sample performance comparisonthe dogs of the dow experienced greater losses during the financial crisis of 2008 than the djia but in the decade and more that followed it only slightly underperformed the bellwether index from 2013 to 2023 the dogs of the dow had a trailing total return of 10 02 compared to a 11 48 trailing total return of the dow jones industrial average djia 3the cumulative effect of this performance year after year shows that despite losing more in 2008 than the index the strategy made up ground and turned in a respectable performance for the decade with a very similar result to the djia in the last five years from 2018 to 2023 however the dogs have trailed the djia with a wider gap turning in trailing total returns of 5 29 compared to the djia s trailing total return of 8 39 4 | |
is there an etf that tracks the dogs of the dow | there isn t an etf that specifically invests in the dogs of the dow strategy by investing in the top 10 dividend performing companies in the dow however there are etfs that invest in a similar strategy with a dividend focus on the dow such as the invesco dow jones industrial average dividend etf djd and the alps international sector dividend dogs etf idog | |
what companies are in the dogs of the dow | the companies that make up the dogs of the dow in 2023 are | |
how are the dogs of the dow chosen | the strategy in choosing the dogs of the dow is simple the 10 companies in the dow jones industrial average that pay the highest dividend yield as of the last trading day of the year are chosen to be in the dogs of the dow 1the bottom linethough the dow of dogs has slightly underperformed the djia in the past 10 years it still works as a good dividend strategy if investors are looking for fixed payments in their portfolio if investors are looking for pure returns then the djia or the s p 500 work as a better overall investment for the long term | |
what is a doji | a doji d ji is a name for a trading session in which a security has open and close levels that are virtually equal as represented by a candle shape on a chart based on this shape technical analysts attempt to make assumptions about price behavior doji candlesticks can look like a cross inverted cross or plus sign although rare a doji candlestick generally signals a trend reversal indication for analysts although it can also signal indecision about future prices broadly candlestick charts can reveal information about market trends sentiment momentum and volatility the patterns that form in the candlestick charts are signals of such market actions and reactions | |
what does a doji tell investors | in japanese doji means the same thing a reference to the rarity of having the open and close price for a security be exactly the same depending on where the open close line falls a doji can be described as a gravestone long legged or dragonfly as shown below image by julie bang investopedia 2019technical analysts believe that all known information about the stock is reflected in the price which is to say the price is efficient still past price performance has nothing to do with future price performance and the actual price of a stock may have nothing to do with its real or intrinsic value therefore technical analysts use tools to help sift through the noise to find the highest probability trades one tool was developed by a japanese rice trader named honma from the town of sakata in the 18th century and it was introduced to the west in the 1990s by steve nison the candlestick chart every candlestick pattern has four sets of data that help to define its shape based on this shape analysts are able to make assumptions about price behavior each candlestick is based on an open high low and close the time period or tick interval used does not matter the filled or hollow bar created by the candlestick pattern is called the body the lines that extend out of the body are called shadows a stock that closes higher than its opening will have a hollow candlestick if the stock closes lower the body will have a filled candlestick one of the most important candlestick formations is called the doji a doji referring to both singular and plural forms is created when the open and close for a stock are virtually the same doji tend to look like a cross or plus sign and have small or nonexistent bodies from an auction theory perspective doji represent indecision on the side of both buyers and sellers everyone is equally matched so the price goes nowhere buyers and sellers are in a standoff some analysts interpret this as a sign of price reversal however it may also be a time when buyers or sellers are gaining momentum for continuing a trend doji are commonly seen in periods of consolidation and can help analysts identify potential price breakouts using a doji to predict a price reversalthe following chart shows a gravestone doji in cyanotech corp s cyan stock from february 2018 following a significant high volume uptrend which could indicate a bearish reversal over the near term following the breakout in this example the gravestone doji could predict a further breakdown from the current levels to close the gap near the 50 or 200 day moving averages at 4 16 and 4 08 respectively traders would also take a look at other technical indicators to confirm a potential breakdown such as the relative strength index rsi or the moving average convergence divergence macd day traders may also put a stop loss just above the upper shadow at around 5 10 in this case although intermediate term traders may place a higher stop loss to avoid being limited out of the trade | |
what is the difference between a doji and a spinning top | candlestick charts can be used to discern quite a bit of information about market trends sentiment momentum and volatility the patterns that form in the candlestick charts are signals of such market actions and reactions doji and spinning tops show that buying and selling pressures are essentially equal but there are differences between the two and how technical analysts read them spinning tops are quite similar to doji but their bodies are larger where the open and close are relatively close a candle s body generally can represent up to 5 of the size of the entire candle s range to be classified as a doji any more than that and it becomes a spinning top a spinning top also signals weakness in the current trend but not necessarily a reversal if either a doji or spinning top is spotted look to other indicators such as bollinger bands to determine the context to decide if they are indicative of trend neutrality or reversal doji and spinning top candles are commonly seen as part of larger patterns such as the star formations by technical analysts on their own they both indicate neutrality in price limitations of a dojiin isolation a doji candlestick is a neutral indicator that provides little information moreover a doji is not a common occurrence therefore it is not a reliable tool for spotting things like price reversals when a reversal does occur it isn t always reliable either there is no assurance that the price will continue in the expected direction following the confirmation candle the size of the doji s tail or wick coupled with the size of the confirmation candle can sometimes mean the entry point for a trade is a long way from the stop loss location this means traders will need to find another location for the stop loss or they may need to forgo the trade because too large of a stop loss may not justify the potential reward of the trade estimating the potential reward of a doji informed trade also can be difficult because candlestick patterns don t typically provide price targets other techniques such as other candlestick patterns indicators or strategies are required to exit the trade when and if profitable | |
what is a dragonfly doji candle | the dragonfly doji is a candlestick pattern stock that traders analyze as a signal that a potential reversal in a security s price is about to occur depending on past price action this reversal could be to the downside or the upside the dragonfly doji forms when the stock s open close and high prices are equal it s not a common occurrence nor is it a reliable signal that a price reversal will soon happen the dragonfly doji pattern also can be a sign of indecision in the marketplace for this reason traders will often combine it with other technical indicators before making trade decisions | |
what is a gravestone doji candle | a gravestone doji candle is a pattern that technical stock traders use as a signal that a stock price may soon undergo a bearish reversal this pattern forms when the open low and closing prices of an asset are close to each other and have a long upper shadow the shadow in a candlestick chart is the thin part showing the price action for the day as it differs from high to low prices while traders will frequently use this doji as a signal to enter a short position or exit a long position most traders will review other indicators before taking action on a trade | |
what is a long legged doji candle | the long legged doji is a type of candlestick pattern that signals to traders a point of indecision about the future direction of a security s price this doji has long upper and lower shadows and roughly the same opening and closing prices in addition to signaling indecision the long legged doji can also indicate the beginning of a consolidation period where price action may soon break out to form a new trend these doji can be a sign that sentiment is changing and that a trend reversal is on the horizon | |
is a doji bullish or bearish | a doji formation generally can be interpreted as a sign of indecision meaning neither bulls nor bears can successfully take over of its variations the dragonfly doji is seen as a bullish reversal pattern that occurs at the bottom of downtrends the gravestone doji is read as a bearish reversal at the peak of uptrends | |
how can a doji be used in cryptocurrency trading | as with stocks and other securities the formation of a doji candlestick pattern can signal investor indecision about a cryptocurrency asset the bottom linea doji candle chart occurs when the opening and closing prices for a security are just about identical if this price is close to the low it is known as a gravestone close to the high a dragonfly and toward the middle a long legged doji the name doji comes from the japanese word meaning the same thing since both the open and close are the same a chart depicting a doji suggests that no clear direction has been established for this security it is a sign of indecision or uncertainty in future prices the harami pattern is another signal in the market that is used in conjunction with the doji to identify a bullish or bearish turn away from indecision | |
what is dollar cost averaging | investing can be challenging even experienced investors who try to time the market to buy at the most opportune moments can come up short dollar cost averaging is a strategy that can make it easier to deal with uncertain markets by making purchases automatic it also supports an investor s effort to invest regularly dollar cost averaging involves investing the same amount of money in a target security at regular intervals over a certain period of time regardless of price by using dollar cost averaging investors may lower their average cost per share and reduce the impact of volatility on the their portfolios in effect this strategy eliminates the effort required to attempt to time the market to buy at the best prices dollar cost averaging is also known as the constant dollar plan investopedia jiaqi zhou | |
how dollar cost averaging works | dollar cost averaging is a simple tool that an investor can use to build savings and wealth over the long term it is also a way for an investor to ignore short term volatility in the broader markets a prime example of long term dollar cost averaging is its use in 401 k plans in which employees invest regularly regardless of the price of the investment with a 401 k plan employees can choose the amount they wish to contribute as well as those investments offered by the plan in which to invest then investments are made automatically every pay period depending on the markets employees might see a larger or smaller number securities added to their accounts 1dollar cost averaging can also be used outside of 401 k plans for instance investors can use it to make regular purchases of mutual or index funds whether in another tax advantaged account such as a traditional ira or a taxable brokerage account dollar cost averaging is one of the best strategies for beginning investors looking to trade etfs additionally many dividend reinvestment plans allow investors to dollar cost average by making purchases regularly benefits of dollar cost averagingwho should use dollar cost averaging the investment strategy of dollar cost averaging can be used by any investor who wants to take advantage of its benefits which include a potentially lower average cost automatic investing over regular intervals of time and a method that relieves them of the stress of having to make purchase decisions under pressure when the market is volatile dollar cost averaging may be especially useful to beginning investors who don t yet have the experience or expertise to judge the most opportune moments to buy it can also be a reliable strategy for long term investors who are committed to investing regularly but don t have the time or inclination to watch the market and time their orders however dollar cost averaging isn t for everyone it isn t necessarily appropriate for those investing time periods when prices are trending steadily in one direction or the other be sure to consider your outlook for an investment plus the broader market when making the decision to use dollar cost averaging bear in mind that the repeated investing called for by dollar cost averaging may result in higher transaction costs compared to investing a lump sum of money once 1special considerationsit s important to note that dollar cost averaging works well as a method of buying an investment over a specific period of time when the price fluctuates up and down if the price rises continuously those using dollar cost averaging end up buying fewer shares if it declines continuously they may continue buying when they should be on the sidelines so the strategy cannot protect investors against the risk of declining market prices like the outlook of many long term investors the strategy assumes that prices though they may drop at times will ultimately rise using this strategy to buy an individual stock without researching a company s details could prove detrimental as well that s because an investor might continue to buy more stock when they otherwise would stop buying or exit the position for less informed investors the strategy is far less risky when used to buy index funds rather than individual stocks investors who use a dollar cost averaging strategy will generally lower their cost basis in an investment over time the lower cost basis will lead to less of a loss on investments that decline in price and generate greater gains on investments that increase in price example of dollar cost averagingjoe works at abc corp and has a 401 k plan he receives a paycheck of 1 000 every two weeks joe decides to allocate 10 or 100 of his pay to his employer s plan every pay period he chooses to contribute 50 of his allocation to a large cap mutual fund and 50 to an s p 500 index fund every two weeks 10 or 100 of joe s pre tax pay will buy 50 worth of each of these two funds regardless of the fund s price the table below shows the half of joe s 100 contributions that went to the s p 500 index fund over 10 pay periods throughout 10 paychecks joe invested a total of 500 or 50 per week the price of the fund increased and decreased over that time the results of dollar cost averaging joe spent 500 in total over the 10 pay periods and bought 47 71 shares he paid an average price of 10 48 500 47 71 joe bought different share amounts as the index fund increased and decreased in value due to market fluctuations the results if joe spent one lump sum say that instead of using dollar cost averaging joe spent his 500 at one time in pay period 4 he paid 11 per share that would have resulted in a purchase of 45 45 shares 500 11 there was no way for joe to know the best time to buy by using dollar cost averaging though he was able to take advantage of several price drops despite the fact that the share price increased to over 11 he ended up with more shares 47 71 at a lower average price 10 48 image by sabrina jiang investopedia 2020 | |
is dollar cost averaging a good idea | it can be when dollar cost averaging you invest the same amount at regular intervals and by doing so hopefully lower your average purchase price you will already be in the market when prices drop and when they rise for instance you ll have exposure to dips when they happen and don t have to try to time them by investing a fixed amount regularly you will end up buying more shares when the price is lower than when it is higher | |
why do some investors use dollar cost averaging | the key advantage of dollar cost averaging is that it reduces the negative effects of investor psychology and market timing on a portfolio by committing to a dollar cost averaging approach investors avoid the risk that they will make counter productive decisions out of greed or fear such as buying more when prices are rising or panic selling when prices decline instead dollar cost averaging forces investors to focus on contributing a set amount of money each period while ignoring the price of the target security | |
how often should you invest with dollar cost averaging | with regard to actually using the strategy how often you use it may depend on your investment horizon outlook on the market and experience with investing if your outlook is for a market in flux that will eventually rise then you might try it if a persistent bear market s at work then it wouldn t be a smart strategy to use if you re planning to use it for long term investing and wonder what interval for buying makes sense consider applying some of every paycheck to the regular purchases | |
what is the dollar duration | the dollar duration measures the dollar change in a bond s value to a change in the market interest rate the dollar duration is used by professional bond fund managers as a way of approximating the portfolio s interest rate risk dollar duration is one of several different measurements of bond s duration as duration measures quantify the sensitivity of a bond s price to interest rate changes dollar duration seeks to report these changes as an actual dollar amount basics of dollar durationdollar duration sometimes called money duration or dv01 is based on a linear approximation of how a bond s value will change in response to changes in interest rates the actual relationship between a bond s value and interest rates is not linear therefore dollar duration is an imperfect measure of interest rate sensitivity and it will only provide an accurate calculation for small changes in interest rates mathematically the dollar duration measures the change in the value of a bond portfolio for every 100 basis point change in interest rates dollar duration is often referred to formally as dv01 i e dollar value per 01 remember 0 01 is equivalent to 1 percent which is often denoted as 100 basis points bps to calculate the dollar duration of a bond you need to know its duration the current interest rate and the change in interest rates | |
where | while dollar duration refers to an individual bond price the sum of the weighted bond dollar durations in a portfolio is the portfolio dollar duration dollar duration can be applied to other fixed income products as well that have prices that vary with interest rate moves dollar duration vs other duration methodsdollar duration differs from macaulay duration and modified duration in that modified duration is a price sensitivity measure of the yield change meaning it is a good measure of volatility and macaulay duration uses the coupon rate and size plus the yield to maturity to assess the sensitivity of a bond dollar duration on the other hand provides a straightforward dollar amount computation given a 1 change in rates limitations of dollar durationdollar duration has its limitations firstly because it is a negative sloping linear line and it assumes the yield curve moves in parallels the result is only an approximation however if you have a large bond portfolio the approximation becomes less of a limitation another limitation is that the dollar duration calculation assumes the bond has fixed rates with fixed interval payments however interest rates for bonds differ based on market conditions as well as the introduction of synthetic instruments | |
what is dollarization | dollarization is the term for when the u s dollar is used in addition to or instead of the domestic currency of another country it is an example of currency substitution dollarization usually happens when a country s own currency loses its usefulness as a medium of exchange due to hyperinflation or instability understanding dollarizationdollarization usually occurs in developing countries with a weak central monetary authority or an unstable economic environment it can occur as an official monetary policy or as a de facto market process either through official decree or through adoption by market participants the u s dollar comes to be recognized as a generally accepted medium of exchange for use in day to day transactions in a country s economy sometimes the dollar assumes official status as legal tender in the country 1the main reason for dollarization is to receive the benefits of greater stability in the value of currency over a country s domestic currency for example the citizens of a country within an economy that is undergoing rampant inflation may choose to use the u s dollar to conduct day to day transactions since inflation will cause their domestic currency to have reduced buying power 2another aspect of dollarization is that the country gives up some of its ability to influence its own economy through monetary policy by adjusting its money supply the dollarizing country effectively outsources their monetary policy to the u s federal reserve 3 this can be a negative factor to the extent that u s period monetary policy is set in the interest of the u s economy and not the interests of dollarized countries however it can be beneficial if it helps takes advantage of an economy of scale in monetary policy that allows the dollarizing country to economize on resources that would need to be devoted to supplying and managing its own money supply it may also be the case that domestic authorities have proven themselves incompetent to manage their own monetary policy giving up an independent monetary policy can move the dollarizing country closer to an optimal currency area with the dollar small countries that engage in a relatively large volume of trade with and have strong economic ties to the u s will especially benefit 4an example of dollarizationzimbabwe ran a dollarization test to see if the adoption of foreign currency could stave off high inflation and stabilize its economy zimbabwe dollar inflation reached estimated rate of 2 2 million percent in july 2008 5 the acting finance minister announced that the u s dollar would be accepted as legal tender for a select number of merchandisers and retailers after the experiment the finance minister announced that the country would adopt the u s dollar by legalizing its general use in 2009 and later suspending use of the zimbabwe dollar in 2015 67dollarization in zimbabwe immediately worked to reduce inflation 8 this reduced the instability of the country s overall economy allowing it to increase its citizens buying power and realize increased economic growth additionally long term economic planning became easier for the country since the stable dollar attracted some foreign investment however dollarization wasn t an entirely smooth ride for the country and there were drawbacks all monetary policy would be created and implemented by the united states some thousands of miles away from zimbabwe decisions made by the federal reserve do not take into account the best interests of zimbabwe when creating and enacting policy and the country had to hope that any decisions such as open market operations would be beneficial not only could zimbabwe not make its goods and services cheaper in the world market by devaluing its currency but the effect dollarization had on banking regulations discouraged foreign investments from other countries 9in 2019 zimbabwe reversed course by reintroducing a new zimbabwe dollar known as the real time gross settlement dollar in february and outlawing the use of the u s dollar and other foreign currencies in june it is known as de dollarization when countries decrease their dependency on the u s dollar inflation in the new zimbabwe dollars has been steep and substantial use of the u s dollar as a black market currency persists 10 despite the challenges as of 2022 zimbabwe has stated that they have no intention of returning to dollarization 11 | |
what is a domestic corporation | a domestic corporation is a company that conducts its affairs in its home country a domestic business is often taxed differently than a non domestic business and may be required to pay duties or fees on the products it imports typically a domestic corporation can easily conduct business in other states or parts of the country where it has filed its articles of incorporation businesses that are located in a country different from the one where they originated are referred to as foreign corporations companies also may be referred to as foreign businesses when they are outside of the state in which they were formed for example a corporation that is incorporated in delaware will be considered a domestic business there and a foreign business in all other states understanding domestic corporationsusually a corporation is established after a business files its articles of incorporation with a state agency from that point forward all of the corporation s conduct is subject to the law of the state in which it was formed even if it is not doing business there this also means that if the company was incorporated under nevada law it will be considered a domestic corporation in that state and a foreign one everywhere else corporations are allowed to change which state laws govern them to become a domestic business in another state the corporation must first be dissolved in the place where it was originally formed after that process is complete the company may file the appropriate articles of incorporation in another state domestic business owners are free to choose where to domesticate their corporations and as a result will seek to analyze corporate laws in different states to determine which state represents the most suitable home historically delaware has often been the preferred option over two thirds of fortune 500 companies are incorporated in the state of delaware 1delaware is perceived as a business friendly state and is particularly known for its court of chancery this unique court system is adroit in resolving complex corporate legal matters including disputes among shareholders delaware also has business friendly usury laws giving banks and credit card companies more freedom to charge steep interest rates on loans 2special considerationsfor a domestic business that is deciding where to be incorporated weighing which states have lower corporate tax rates is not a big consideration under federal tax laws corporations are subject to taxation rates in the place where they do business not where they were formed 3corporations are subject to the tax rates in the state where they do business not where they were formed 3corporations doing business in another state generally must register as foreign businesses in that state with any business conducted there being taxed by that state at their rates a business located where corporate tax is high would not be able to lower its tax bill by choosing to incorporate in a state where taxation is lower 3 | |
what is a domestic relations order dro | a domestic relations order dro is a court order that gives a spouse or dependent the right to receive all or a portion of the benefits of an employee s qualified retirement plan in the event of divorce a dro is usually sent to a plan administrator or employer for review and if it meets certain laws it will result in the plan benefits distributed between the parties involved the parties involved are normally the employee and their spouse regulations for public employeesthe retirement equity act rea of 1984 which falls under the employee retirement income security act erisa states that the retirement benefit plan of a public employee constitutes an asset for both the employee and their alternative payee an alternate payee according to the irs can be the spouse ex spouse or dependent of the employee in the event of marital dissolution this asset must therefore be taken into account 1an approved dro is known as a qualified domestic relations order qdro under federal laws qualified plans like defined benefit plans esops 401 k plans and profit sharing plans require a qdro in order to distribute benefits to an alternative payee 2 once a dro has been determined to be qualified notification of approval is sent to the attorney who in turn submits their final revisions to the court for a judgment an official copy of the court s judgment is passed on to the plan administrator to begin processing the retirement plan benefit a qdro is a mandatory order that must be followed to a tee and honored by the employee s company or plan administrator 3 however in the event that a dro is erroneously judged as qualified the qdro can be taken to court to be corrected or changed plan administrator reviewan employer or plan administrator is normally in charge of reviewing a domestic relations order dro the employer s company may have in house hr employees who are well versed in pension laws or contract the services of external plan administrators who conduct dro assessments when an order is sent by an attorney to a plan administrator for review the employer or administrator applies a checklist to ensure that the plan meets the requirements for it to be qualified and bound by the order an order may be unqualified if the benefit required from the order is not supported by the retirement plan or if the terms of the order do not comply with federal laws in this case the plan administrator notifies the attorney representing the beneficiary on the reasons why the order does not meet the plan s requirements the attorney who reviews the assessment may then amend the copy of the dro and re send it to the employer or administrator to re assess dro processing timesthe time it takes to process a benefits plan depends on the type of retirement plan the employee has and the stipulations set out in the court s judgment upon completion of the distributed payments the plan is split in two and the alternative payee has one of the two accounts in their name if the account is a qualified defined benefit plan the alternate payee may not receive any payout until the employee retires or reaches the normal retirement age as defined by the plan however some retirement plans make it possible for the alternative payee to be paid immediately under a qualified defined contribution plan a check payable to the alternate payee may be made as soon as practicable while the federal law erisa governs the distribution of private qualified retirement plans this law does not apply to government benefits and plans government retirement benefits are therefore divided between the plan owner and the alternative employee using a dro only retirement benefits provided by a state the military federal government a county or city are all government plans that are not qualified erisa s laws therefore do not apply to these plans 4 | |
what is a domicile | a domicile is the place where you maintain a permanent home because it s your fixed or principal place of residence your domicile is used in a variety of legal or tax purposes understanding domicilesat birth your domicile of origin is the home you share with your parents or legal guardians this location remains your domicile until you reach the age of majority and acquire a domicile of choice this locale remains your domicile until you leave it and relocate to a new domicile with the bona fide intent to make the new domicile your fixed and permanent home no matter how many homes you own only one is your domicile it is the one you acquire intending to remain indefinitely and to which you relocate after you abandon your old domicile it could be the home where you live work bank vote and register your car 1as noted above there are certain rights and responsibilities associated with your domicile this means that your domicile means you must adhere to certain activities based on this location this includes things like voting certain registrations your driver s license and car registration filing taxes and claiming benefits and filing lawsuits among others residence and domicile are not the same and have distinct legal meanings 2uses of domicilesyou ll see some of the concepts below mentioned throughout this article for now here s a summary of the different way your domicile may be used other domicile considerationssome people live equally in two homes for example suppose that after many years of living in maine and vacationing in florida a person then decides to live half the year in maine and the other half the year in florida they file their taxes and make a will in maine but vote and have registered their car in florida this even split of their essential activities between maine and florida indicates that they did not intend to abandon maine when they moved to florida consequently both maine and florida are their residences but since they file taxes in maine that state becomes their domicile not florida you cannot change your domicile by merely filing a declaration of domicile in another country or state instead your lifestyle must comport with a permanent change of domicile your intended domicile can be inferred from the place where you live and spend time your domicile is the location you declare in legal documents such as the address you use to vote bank register vehicles and pay taxes ending a domicile association includes your efforts to close bank accounts surrender your driver s license remove your name from voting rolls and pay taxes as a non resident your domicile carries legal consequences it defines which country state and courts have jurisdiction to probate wills administer estates adjudicate lawsuits and assess state income and death taxes after a divorce the legal domicile can affect your ability to claim and monitor alimony and child support payments your domicile affects the circumstances under which you pay state taxes residence in a country or state limits the reach of taxing authorities to tax income you earn within its borders 2the imposition of death taxes is by the domicile country or state depending on your stated domicile and that of your beneficiaries estate tax implications may be dramatically different the domicile can extend its reach to all of your income from any source worldwide however indications of residence such as owning real property or indications of domicile such as failing to abandon your previous domicile properly can subject you to taxes in more than one state 3upper income taxpayers will often domicile in a state that has the lowest tax liability for them domicile vs residenceyou may have heard residence and domicile being used interchangeably to refer to your home however the two terms have distinct legal meanings the distinguishing factor between the two words is the length of time you intend to live there a residence is a home you expect to live in for a temporary period whereas a domicile is a home you plan to live in for an indefinite period any place you own property or live for a prescribed period can be your residence but only the one site where you intend to make your permanent home and remain indefinitely can be your domicile thus you can have many residences but you can have only one domicile in one intended place 2your domicile is also your residence but your residence may or may not be your domicile | |
when you move it may be necessary to take steps to establish and prove your new domicile here are a few things you should consider | inform the professionals in your life from doctors to dentists of your move and update your new address with all of your credit cards passport bank and brokerages utilities and cell phone providers set up bank accounts with your new local branch and if you have young children sign them up for the local schools and sign up for your local library | |
what is the definition of domicile | the legal definition of domicile is the address you declare in legal documents to pay taxes receive social security vote bank and register vehicles and animals | |
what is the difference between a residence and a domicile | a residence is a location where you may live part time or full time a domicile is your legal address and your domicile is located in the state where you pay taxes 2 | |
how do i know my domicile | you will know your domicile because it will be the state and location you consider your permanent home it s the location where you probably maintain your social economical and family ties your domicile is also the place where you pay taxes vote and have a driver s license | |
what are the types of domicile | domiciles can be any house or apartment condominium or co op it is the place where you plan to live indefinitely you can have more than one residence but your domicile is your forever home | |
what is my tax domicile | your tax domicile is your permanent home where you pay your state income tax the bottom lineyou may live in many places or even own multiple homes but you can only have one domicile when you reach the age of majority previously your domicile is the home you share with your parent or legal guardian it is possible to relocate to a new domicile but it takes time and effort to establish a legal intent to make your new domicile your permanent home it is the location where you register your car your pet your vote and pay your state taxes a legal term domicile is defined by the state or country and its courts have jurisdiction to administer your estate probate your will when you die and assess your state income taxes in addition your legal domicile informs your child support and alimony in the case of a divorce | |
what are donchian channels | donchian channels are a tool in technical analysis used to determine the relative volatility of a market and the potential for price breakouts to form it three lines are generated from moving average calculations that produce a filled in channel formed by upper and lower bands around a midrange band the upper band marks the highest price of a security over a period while the lower band marks the lowest price of a security over that time the area between the upper and lower bands is called the donchian channel while relatively simple it s quite helpful in highlighting trends and can suggest the right time to enter or exit a position | |
how to calculate donchian channels | technical analysis in trading evaluates and predicts future price moves and trends for securities one tool employed often is the donchian channel while the mathematical formula behind it is straightforward many online trading platforms and technical analysis apps calculate and plot the donchian channel for you this convenience is helpful but it s also important to understand the nuts and bolts so you know the tool s benefits and its limits basically the donchian channel is formed by identifying the highest and lowest prices of a security over a set time 1 this can be adjusted based on your trading strategy though the most common is 20 periods the typical number of trading days in a month the upper channel line is drawn at the highest price reached during a period while the lower channel line is at the lowest price there s also a middle line which represents the average of these two extremes here s the formula and then how it works uc highest high in last n periodsmiddle channel uc lc 2 lc lowest low in last n periodswhere uc upper channeln number of minutes hours days weeks monthsperiod minutes hours days weeks monthslc lower channel begin aligned text uc highest high in last n text periods text middle channel uc lc 2 text lc lowest low in last n text periods textbf where uc text upper channel begin aligned n text number of minutes hours days text weeks months end aligned begin aligned text period text minutes hours days weeks text months end aligned lc text lower channel end aligned uc highest high in last n periodsmiddle channel uc lc 2 lc lowest low in last n periodswhere uc upper channeln number of minutes hours days weeks months period minutes hours days weeks months lc lower channel the upper channel uc is the highest price level over a specified number of periods n the periods can be minutes hours days weeks or months depending on your trading strategy by contrast the lower channel lc is the lowest price level over the same number of periods the middle channel is the average of the upper and lower channels giving you a midpoint in the price range | |
what do donchian channels tell you | donchian channels depict the relationship between the current price and trading ranges over set periods 2 three values build a visual map of price over time like bollinger bands signaling the extent of bullishness and bearishness for the chosen period the top line shows the extent of bullish energy the highest prices achieved for the period the middle line identifies the period s median or mean reversion price highlighting the middle ground the bottom line shows the extent of bearish energy and the lowest price for the period example of how to use donchian channelsimage by sabrina jiang investopedia 2021in this example the donchian channel is the shaded area bound by the upper green and the lower red lines using 20 days for the band construction over n periods as the price moves to its highest point in the last 20 days or more the price bars push the green line higher as the price drops to its lowest point in 20 days or more the price bars push the red line lower | |
when the price decreases for 20 days from a high the green line will be horizontal and then start dropping conversely when the price rises from a low for 20 days the red line will be horizontal for 20 days and then start rising | practical uses of the donchian channeldonchian channels have several applications for traders in stocks forex commodities and other markets they can help identify potential breakouts and reversals in price which are the moments when traders are called on to make strategic decisions these strategies can help you capitalize on price trends while having pre defined entry and exit points to secure gains or limit losses using the donchian channel can thus be part of a disciplined approach to managing trades the width of the area enclosed within the upper and lower lines reveals the asset s volatility a wider channel signifies high volatility and larger swings in price during the period implying the asset has a high potential for price fluctuations a narrow channel shows lower volatility meaning the asset could be more stable or is in the midst of consolidating previous gains or losses | |
when an asset price keeps trading within a narrow range of the donchian channel signaling potential consolidation a breakout could be more likely to occur once the price moves above or below the outer lines | an important use of donchian channels is to determine support and resistance levels the upper band of the channel diagrams the highest price of an asset over a set period which can serve as its resistance level alternatively the lower band marking the lowest price point for the same time provides the support level a breakout above the upper band can signal the beginning of an upward swing suggesting a potential buying opportunity meanwhile should the price go below the lower band this could be the time for selling or shorting the asset determining when a breakout happens involves watching for when the price moves beyond the upper or lower band you can usually confirm a breakout once the price closes at a point above or below the upper or lower channels beyond using the channels for signs of a breakout they are used to follow trends and strategize accordingly for example you might consider buying a long position on a security when the price stays near or touches the upper band signaling upward momentum alternatively a short position might be in order if there s a similar movement at or near the lower channel the middle line is useful too since it allows you to have another means for seeing relative support or resistance in the asset prices donchian channels can be a risk management tool for locking in profits or stopping a slide in losses for example if you are holding a long position you might want to follow a common approach setting your stop loss just below the lower donchian channel band should the price plunge beneath that point there might be a reversal or breakdown in the trend this could be where you put the stop loss to limit your risk if you have shorted an asset you would place a stop loss at a point above the upper band should the price go above this level you might have an upward trend a stop loss there would protect you from further losses you can also use the donchian channel for trailing stop loss orders for a long position you can gradually push the stop loss upward trailing below the lower band when it s rising if you re in a short position you can adjust it lower trailing just above the descending upper band whether you have a long or short position the middle line of the donchian channel can help you determine where to put a take profit order which is a limit order identifying the price at which you ll get out of a position and pocket the profit you might for instance secure at least some of your profits if the price starts to cross the mid channel line particularly if it s previously worked as a support or resistance level another strategy would involve waiting for the asset s price to hit up against the opposite band of the channel in a long position this would mean using the upper band for taking profits and in a short position similarly for the lower band combining donchian channels with other toolsdonchian channels can be blended with other technical analysis tools to bolster a trading strategy here are several ways to do so moving averages and volume moving averages are used to smooth out price data for a period by creating a constantly updated average price you can lay them over a donchian channel to confirm or isolate trends also you can use volume charts to confirm the solidity of a breakout signaled by the donchian channel relative strength index rsi this measures how rapid price shifts occur often technical analysts use this data scored between 0 and 100 to recognize when there s too much buying or selling of a security you can use rsi with a donchian channel to initiate or back off trades for example a breakout beyond the upper band with a high rsi could suggest an overtraded security and signal the need for caution before buying alternatively a breakout below the lower band and a low rsi could indicate the security is oversold a signal of a potential buying opportunity moving average convergence divergence macd using macd with donchian channels combines trend and momentum strategies macd measures momentum by comparing two moving averages and can be used to confirm signals from a donchian channel for example should a price break the upper donchian band signaling a bullish trend a bullish macd crossover when the line in the macd crosses above the signal line could indicate how strong the trend is likewise should the price drop beneath the lower donchian channel and come with a bearish macd crossover this would signal that the move downward is a strong trend the difference between donchian channels and bollinger bandsdonchian channels plot the highest high and lowest low over n periods while bollinger bands plot a simple moving average for n periods plus or minus the standard deviation of the price for n periods times two this results in a more balanced calculation that reduces the impact of big high or low prints limits in applying donchian channelsdonchian channels have the same limitations as most other technical analysis charts you could be looking at periods that may not reflect the market for an asset or seeing false signals about its future moves there s also the risk of looking for cues to confirm what you wish were the case or have previously concluded here are some potential issues in using donchian channels false breakouts when a price breaks above or below the donchian channel this could suggest a trend and then it quickly reverses direction in the meantime this might have led to a premature and unprofitable set of trades before the reversal lagging indicator donchian channel charts are at best lagging indicators they depict past price changes but don t predict them the donchian channel might not supply signals fast enough to trade on in a highly volatile market sideways markets donchian channels like most technical analysis tools are clearest when dealing with trending markets in sideways markets where trading is within a tight range with no evident trendline the price might touch the upper and lower bands frequently potentially leading to false signals for trend following strategies overreliance on them donchian channels should be used with other technical analysis tools to confirm signals and check your conclusions against the broader market the wrong period setting donchian channels give you the best information when you have chosen the right number of periods to calculate the high and low bands but of course this leads to the question of how to know the number of periods to use that comes from experience since there are no one size fits all directions to give what works for certain assets or markets might not work well in another | |
how do donchian channels differ from other moving average indicators | donchian channels unlike standard moving average indicators focus on the highest and lowest price points over a set time frame while moving averages give a smoothed average price trend donchian channels create a band enclosing the extreme highs and lows this can be particularly useful for identifying breakout points and the size of volatility | |
what is a dormant account | a dormant account is a customer s account at a bank or other financial institution that has seen no activity with the possible exception of interest deposits for a long period of time the owner may have forgotten about the account moved out of town without leaving a forwarding address or died a dormant account with a very small balance may simply evaporate reaching a zero balance due to monthly bank fees that exceed any interest paid if not the balance is turned over to the state which will return it to the rightful owner upon request financial institutions are required to transfer the money held in dormant accounts to the state s treasury after the accounts have been dormant for a certain period of time the amount of time varies by state | |
how a dormant account works | accounts that can be declared dormant include checking and savings accounts brokerage accounts 401 k accounts and pension fund accounts the contents of safety deposit boxes also may be declared unclaimed property the inactive period before an account is declared dormant may be as short as two years an account becomes dormant if its owner does not initiate any activity for a specific period of time an activity can include contacting a financial institution by phone or internet logging into the account withdrawing or depositing money or receiving a payment from a third party interest or dividend payments that are posted automatically to checking savings or brokerage accounts are not considered to be activity if your bank fails your account or safety deposit box will normally be held by the bank that took over the assets or by the fdic if the account was deemed inactive it may be held by the state in which the account was opened the fdic has online resources for those who have deposits in institutions that have failed 12in some states financial institutions are required to make an attempt to contact the owners of dormant accounts using the most recent mail contact information on file if the attempt to find the owner is unsuccessful the assets in dormant accounts become unclaimed property and must be transferred to the state s treasury department in california for example checking savings and brokerage accounts must see no activity for at least three years in order to become dormant 3 in the state of delaware there is a five year dormancy period for the same types of accounts 4a statute of limitations usually does not apply to dormant accounts meaning that funds can be claimed by the owner or beneficiary at any time in the future the escheatment process for dormant accountsescheatment is the legal process for transferring unclaimed property to the state account owners can reclaim assets that were deemed inactive and transferred to the state states have enacted escheatment statutes that govern the process of transferring unclaimed funds to the state and protect the unclaimed funds from reverting back to financial institutions escheatment state laws require companies to transfer unclaimed property from dormant accounts to the general fund of a state for safekeeping the state takes over record keeping and the returning of lost or forgotten property to owners or their heirs if the owner has passed away owners can recoup unclaimed property by filing an application with the state in which the account was opened at no cost because the state keeps custody of the unclaimed property in perpetuity owners can claim their property at any time in some cases property such as stock shares may have been sold by the state in that case the cash value of the shares is paid out to the claimant examples of state processes for reclaiming propertyevery state has its own policies and processes for allowing people to reclaim assets from inactive accounts that have been turned over to the state california for example maintains a searchable database that allows potential claimants to search by social security number the state of florida has a search function that it calls the florida treasure hunt as that title implies states are actually eager to return unclaimed property after all they have the recordkeeping responsibility but don t get to use the cash | |
how can i claim my money from a dormant account | your first step is to contact the bank or other financial institution where you had the account you ll need proper identification and you should have some proof that it s your money such as a bank statement if the bank has deemed the account inactive but has not yet transferred the money to the state the account should be simply reactivated if the money is in the state s hands you need to go to the state treasury department to get it back the department should have a website devoted to claiming unclaimed property i think i have unclaimed money out there what do i do the national association of unclaimed property administrators naupa has a free search tool that can help you track down unclaimed property in all 50 states some canadian provinces and other geographies worldwide like puerto rico and kenya there are other commercial and governmental unclaimed property search services online and off however note that naupa is a nonprofit association of state administrators who actually have custody of all that unclaimed money and want to return it to the rightful owners can i close a dormant account you can close a dormant account and you should do so otherwise the money will slowly get eaten away by fees including dormant account fees to do this contact the financial institution and ask it to transfer the remaining balance in the account to another current account the bottom lineit s surprisingly easy to lose track of a bank account when you move house change jobs or otherwise disrupt your ordinary routine luckily the money won t disappear or even be spent by someone else your bank has a process for handling these dormant accounts and that process includes handing them over to the state treasury for safekeeping the money is yours in perpetuity you just have to go through the process of locating and claiming it | |
what is a dotcom | a dotcom or dot com is a company that conducts business primarily through a website a dotcom company embraces the internet as the key component in its business dotcoms get their name from the url or domain name that customers enter to visit a website the com at the end of the url stands for commercial url is an acronym for uniform resource locator a number of alternatives to com are available including org for nonprofits edu for universities and other educational users and gov for official government agencies more extensions are introduced from time to time as the vast volume of com sites makes it more difficult for a new company to identify an intelligible name there is a status consciousness behind some choices the extension io an abbreviation used by techies and gamers for input output has become the cool new domain name according to finextra research 1 the extension info may be adopted to imply that a source is credible understanding dotcomsthe dotcom business model requires an internet presence for the business to function this is the primary component of its definition most or all of a dotcom company s products or services are displayed marketed sold and supported via the internet the word dotcom once referred to any internet based company dotcom now most often refers to an internet company created during the internet bubble of the 1990s the dotcom bubblethe dotcoms took the world by storm in the late 1990s with valuations rising faster than any other industry in recent memory any company with dotcom in its name could score a huge valuation on the stock market even if it lacked any profits or physical assets and couldn t produce a coherent business plan many early dotcoms spent lavishly on marketing and brand recognition and much less on any actual product or service being offered ultimately the dotcom bubble burst in 2001 when investors grew tired of waiting for profits a mild recession followed in the united states and other developed nations examples of companies from the dotcom crasha site dedicated to selling pet products called pets com became a symbol of the dotcom crash the company spent more than 2 million on a super bowl commercial in january 2000 late that year the company reported losses of approximately 147 million for the first three quarters while the stock price had peaked at 14 a share early in the year prices fell to below 1 after the losses were made public the business did not survive 2pseudo com was a site that focused on internet broadcasting services including livestreaming services poor business practices ultimately resulted in the failure of the dotcom and the site never became profitable there were success stories too companies founded during the dotcom boom include amazon com founded in 1994 ebay com founded in 1995 and imdb com founded in 1990 | |
how do dotcoms get their name | dotcoms get their name from the uniform resource locator url or domain name that customers enter to visit a website the com at the end of the url stands for commercial | |
what does a dotcom require | the primary component of the dotcom business model is an internet presence most if not all of a dotcom company s products or services are displayed marketed sold and supported via the internet | |
what was the dotcom bubble | the dotcom bubble was a rapid rise in u s technology stock equity valuations fueled by investments in internet based companies during a bull market in the late 1990s the value of equity markets grew exponentially during this period the bubble burst in 2001 with equities entering a bear market the bottom linea dotcom is a company that conducts business primarily through a website and embraces the internet as the key component in its business it is also known as a dot com | |
what was the dotcom bubble | the dotcom bubble was a rapid rise in u s technology stock equity valuations fueled by investments in internet based companies during the bull market in the late 1990s the value of equity markets grew exponentially during this period with the technology dominated nasdaq index rising from under 1 000 to more than 5 000 between the years 1995 and 2000 things started to change in 2000 and the bubble burst between 2001 and 2002 with equities entering a bear market 12the crash that followed saw the nasdaq index which rose five fold between 1995 and 2000 tumble from a peak of 5 048 62 on march 10 2000 to 1 139 90 on oct 4 2002 a 76 81 fall by the end of 2001 most dotcom stocks went bust even the share prices of blue chip technology stocks like cisco intel and oracle lost more than 80 of their value it would take 15 years for the nasdaq to regain its peak which it did on april 24 2015 13understanding the dotcom bubblethe dotcom bubble also known as the internet bubble grew out of a combination of the presence of speculative or fad based investing the abundance of venture capital funding for startups and the failure of dotcoms to turn a profit investors poured money into internet startups during the 1990s hoping they would one day become profitable many investors and venture capitalists abandoned a cautious approach for fear of not being able to cash in on the growing use of the internet with capital markets throwing money at the sector start ups were in a race to quickly get big companies without any proprietary technology abandoned fiscal responsibility they spent a fortune on marketing to establish brands that would set them apart from the competition some start ups spent as much as 90 of their budget on advertising speculative bubbles are notoriously hard to recognize while happening but seem obvious after they burst record amounts of capital started flowing into the nasdaq in 1997 by 1999 39 of all venture capital investments were going to internet companies that year most of the 457 initial public offerings ipos were related to internet companies followed by 91 in the first quarter of 2000 alone the high water mark was the aol time warner megamerger in jan 2000 which became the biggest merger failure in history 45the bubble ultimately burst leaving many investors facing steep losses and several internet companies going bust companies that famously survived the bubble include amazon ebay and priceline the dotcom bubble is but one of several asset bubbles that have appeared over the past centuries | |
how the dotcom bubble burst | the 1990s was a period of rapid technological advancement in many areas but it was the commercialization of the internet that led to the greatest expansion of capital growth the country ever saw although high tech standard bearers such as intel cisco and oracle were driving organic growth in the technology sector it was upstart dotcom companies that fueled the stock market surge that began in 1995 the bubble that formed over the next five years was fed by cheap money easy capital market overconfidence and pure speculation venture capitalists anxious to find the next big score freely invested in any company with a com after its name valuations were based on earnings and profits that would not occur for several years if the business model actually worked and investors were all too willing to overlook traditional fundamentals companies that had yet to generate revenue profits and in some cases a finished product went to market with ipos that saw their stock prices triple and quadruple in one day creating a feeding frenzy for investors the nasdaq index peaked on march 10 2000 at 5 048 nearly double over the prior year several of the leading high tech companies such as dell and cisco placed huge sell orders on their stocks when the market peaked sparking panic selling among investors within a few weeks the stock market lost 10 of its value 13as investment capital began to dry up so did the lifeblood of cash strapped dotcom companies dotcom companies that reached market capitalizations in the hundreds of millions of dollars became worthless within a matter of months by the end of 2001 a majority of publicly traded dotcom companies folded and trillions of dollars of investment capital evaporated 1 | |
how long did the dotcom bubble last | the dotcom bubble lasted about two years between 1998 and 2000 the time between 1995 and 1997 is considered to be the pre bubble period when things started to heat up in the industry | |
why did the dotcom bubble burst | the dotcom bubble burst when capital began to dry up in the years preceding the bubble record low interest rates the adoption of the internet and interest in technology companies allowed capital to flow freely especially to startup companies that had no track record of success valuations rose and money eventually dried up this led companies many of which didn t even have a business plan or product to collapse causing the market to crash | |
what caused the dotcom crash | the dotcom crash was triggered by the rise and fall of technology stocks the growth of the internet created a buzz among investors who were quick to pour money into startup companies these companies were able to raise enough money to go public without a business plan product or track record of profits these companies quickly ran through their cash which caused them to go under | |
what caused the 2000 stock market crash | the 2000 stock market crash was a direct result of the bursting of the dotcom bubble it popped when a majority of the technology startups that raised money and went public folded when capital went dry the bottom line | |
what is a double bottom | a double bottom pattern is a classic technical analysis charting formation that represents a major change in trend and a momentum reversal from a prior down move in market trading it describes the drop of a security or index a rebound another drop to the same or similar level as the original drop and finally another rebound that may become a new uptrend the double bottom looks like the letter w the twice touched low is now considered a significant support level while those two lows hold the upside has new potential 1in terms of profit targets a conservative reading of the pattern suggests the minimum move price target is equal to the distance of the two lows and the intermediate high more aggressive targets are double the distance between the two lows and the intermediate high | |
what does a double bottom tell you | in technical analysis of financial markets a double bottom is significant in that it suggests an important low or strong level of support has been reached following a down move while the double bottom low remains in place price movement is likely to exhibit a retracement higher and possibly indicate the beginning of a new uptrend 2 by the same token a drop below the double bottom lows in subsequent periods suggests the downtrend is resuming and the bears have reasserted their primacy as with many chart patterns a double bottom pattern is best suited for analyzing the intermediate to longer term view of a market generally speaking the longer the duration between the two lows in the pattern the greater the probability that the chart pattern will be accurate it is for the reason above better to use daily or weekly data price charts when analyzing markets for this particular pattern the double bottom pattern always follows a major or minor down trend in a particular security and signals a reversal and the beginning of a potential uptrend the pattern should be validated by a change in market fundamentals for the security itself for example better earnings as well as the sector that the security belongs to and the market in general the fundamentals should reflect the characteristics of an upcoming reversal in market conditions also volume should be closely monitored during the formation of the pattern a spike in volume typically occurs during the two upward price movements in the pattern these spikes in volume are a strong indication of upward price pressure and serve as further confirmation of a true double bottom pattern once the closing price is in the second rebound and is approaching the high of the first rebound of the pattern in other words the middle of the w a noticeable expansion in volume is coupled with fundamentals that indicate market conditions are conducive to a reversal a long position should be taken on a daily close above the price level of the high of the first rebound with a stop loss at the second low in the pattern the minimum measured move objective for the pattern is the distance from the two lows to to the intermediate high in the middle of the pattern a more aggressive interpretation of the pattern suggests a target at two times the distance between the lows and the intermediate high example of a double bottomtradingviewthe daily trading chart above shows a double bottom in the case of an overall downtrend in advanced micro devices amd the first low is met by significant buying interest after a sudden sharp decline producing a long light candlestick and a bullish engulfing line if you re also using candlestick analysis those are both bullish reversal patterns the subsequent high is nearly 10 up from the first low suggesting investors should keep a sharp eye out for another downside move at this point as rebounds from the first low are typically on the order of 10 to 20 the second low of the pattern is within 3 to 4 of the prior low contributing to the validity of the pattern with the second bottom now in place traders should reckon with a potential correction higher or even a new uptrend as a level of significant support has been reached and tested twice the pattern is invalidated and downside potential resumes on a drop below the double bottom lows on the other hand a daily close above the intermediate high suggests a major reversal and perhaps the beginning of a new uptrend double bottom formations are highly effective when identified correctly however they can be extremely detrimental when they are interpreted incorrectly therefore one must be extremely careful and patient before jumping to conclusions the clue to watch for is another bottom around the earlier low followed by bullish confirmation in subsequent periods for example days or weeks such patterns are most readily visible on daily and weekly charts must the two bottoms of the lows in the double bottom pattern be the same no there is room to play with the relative levels of the lows though they should be within 3 to 4 of each other in fact if you think about it a higher second bottom suggests the selling pressure came to an earlier end indicating the low of the first bottom is a potentially highly significant support level that said it is perhaps surprising how many times the double bottom lows are identical adding great significance to the low price point as major support | |
what is the overall interpretation of a double bottom | a double bottom is suggestive of a change in direction higher and possibly the start of a new uptrend to put it in buyers sellers terms the sellers have created a downtrend that came to a low point support which led to a rebound or short covering the rebound that follows is considered corrective within the overall downtrend meaning the sellers are still in place and they eventually make another try for the downside however the previous low support level manages to hold again meaning the fundamentals may have changed and the selling pressure may have been exhausted leaving the sellers suddenly on the wrong side of the downward move | |
does the double bottom suggest a price target | yes the minimum price target for the formation is the distance from the previous low to the corrective high in the middle of the formation so the target is roughly 10 higher from the initial low gains beyond that level after the second bottom has been reached would be an extremely bullish signal and may confirm a more significant bottom has been reached and the upside is now in play the bottom linedouble bottom formations are among the most significant chart patterns for identifying longer term shifts in trends signaling a major low has been reached for the foreseeable future the pattern typically suggests a 10 to 20 rebound after the second low has been made but there may be more upside if the fundamental landscape has changed in the securities favor for instance positive future earnings outlook could create a new uptrend double bottoms are best identified visually using relatively long term charts daily and weekly the lows do not have to be identical but preferably between 3 to 4 of each other the upside potential has as its minimum measured target level the highs of the first rebound about 10 a pullback and second test of the downside support completes the pattern if the low is within 3 to 4 of the prior low once the double bottom pattern is formed traders should keep an eye out for upside moves if the high in the middle of the pattern is breached after the second bottom has been formed it suggests further upside potential and perhaps the start of a new uptrend | |
what is the double declining balance ddb depreciation method | the double declining balance depreciation ddb method also known as the reducing balance method is one of two common methods a business uses to account for the expense of a long lived asset the double declining balance depreciation method is an accelerated depreciation method that counts as an expense more rapidly when compared to straight line depreciation that uses the same amount of depreciation each year over an asset s useful life similarly compared to the standard declining balance method the double declining method depreciates assets twice as quickly investopedia madelyn goodnightdouble declining balance ddb depreciation formulaunderstanding ddb depreciationthe declining balance method is one of the two accelerated depreciation methods and it uses a depreciation rate that is some multiple of the straight line method rate the double declining balance ddb method is a type of declining balance method that instead uses double the normal depreciation rate depreciation rates used in the declining balance method could be 150 200 double or 250 of the straight line rate when the depreciation rate for the declining balance method is set as a multiple doubling the straight line rate the declining balance method is effectively the double declining balance method over the depreciation process the double depreciation rate remains constant and is applied to the reducing book value each depreciation period the book value or depreciation base of an asset declines over time with the constant double depreciation rate and a successively lower depreciation base charges calculated with this method continually drop the balance of the book value is eventually reduced to the asset s salvage value after the last depreciation period however the final depreciation charge may have to be limited to a lesser amount to keep the salvage value as estimated under the generally accepted accounting principles gaap for public companies expenses are recorded in the same period as the revenue that is earned as a result of those expenses 1 thus when a company purchases an expensive asset that will be used for many years it does not deduct the entire purchase price as a business expense in the year of purchase but instead deducts the price over several years 2because the double declining balance method results in larger depreciation expenses near the beginning of an asset s life and smaller depreciation expenses later on it makes sense to use this method with assets that lose value quickly double declining balance depreciation allows for higher depreciation expenses in early years and lower expenses as an asset nears the end of its life this is considered an accelerated depreciation method example of ddb depreciationas a hypothetical example suppose a business purchased a 30 000 delivery truck which was expected to last for 10 years after 10 years it would be worth 3 000 its salvage value under the straight line depreciation method the company would deduct 2 700 per year for 10 years that is 30 000 minus 3 000 divided by 10 using the double declining balance method however one would first calculate the straight line depreciation sldp as 1 10 years of useful life 10 per year they would then double the sldp 10 x2 20 and thus deduct 20 of 30 000 6 000 in year one 20 of 24 000 4 800 in year two and so on stopping when the book value equaled the salvage value | |
what is depreciation | depreciation is an accounting process by which a company allocates an asset s cost throughout its useful life in other words it records how the value of an asset declines over time firms depreciate assets on their financial statements and for tax purposes in order to better match an asset s productivity in use to its costs of operation over time |
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