Glossary

Key terms every dividend ETF investor should know.

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19a Notice: A regulatory notice funds send when a distribution includes an estimated return of capital, showing the source breakdown of the payout.

Alpha: Excess return of an investment relative to a benchmark index after adjusting for risk. Positive alpha means the fund beat expectations.
Annualized Yield: A single-period distribution extrapolated to a full year. A one-week payout multiplied by 52, or a monthly by 12.
AUM: Assets Under Management — total market value of securities a fund holds. Higher AUM generally means better liquidity and tighter spreads.

Bid-Ask Spread: The gap between the highest buy price and lowest sell price. Wider spreads on thinly traded ETFs raise the true cost of ownership.
Beta: A measure of how much a fund moves relative to the broader market. Beta of 1.0 tracks the market; above 1.0 is more volatile.

Contango: When futures prices are higher than spot — costly for funds that roll futures contracts and a frequent drag on synthetic income ETFs.
Covered Call: An options strategy where a fund sells (writes) call options on securities it holds (or synthetically holds) to generate premium income.
Cost Basis: The original value of an investment for tax purposes. Return-of-capital distributions reduce cost basis rather than triggering current tax.

Declaration Date: The day a fund officially announces the amount and payment date of an upcoming distribution.
Distribution Yield: The most recent distribution annualized and divided by the fund's current NAV or price. Common for income ETFs; can overstate sustainable yield.
DRIP: Dividend Reinvestment Plan — automatically using distributions to buy additional shares instead of taking the cash.

Ex-Dividend Date: The first trading day on which new buyers are NOT entitled to the upcoming dividend. Shareholders on the prior day receive it.
Expense Ratio: The annual percentage of assets a fund charges to cover operating expenses, deducted from NAV.

Forward Split: A corporate action increasing share count and reducing price proportionally — e.g. 2-for-1 doubles shares and halves price. No change to total value.

Implied Volatility: The market's forecast of a security's future price swings. Higher IV means richer option premiums for covered-call ETFs.
Income ETF: An ETF whose primary objective is generating regular cash distributions rather than long-term capital appreciation.
Inception Date: The day a fund began trading. Newer funds have shorter track records; be cautious extrapolating short-term yields.

NAV: Net Asset Value — a fund's per-share value, calculated as (assets minus liabilities) divided by shares outstanding, published daily after close.
NAV Erosion: Persistent decline in a fund's Net Asset Value, often seen in high-yield covered-call ETFs when option premium doesn't fully offset underlying drawdowns.

Option Premium: The price a buyer pays to the seller of an option contract. Covered-call ETFs collect this premium as their primary income source.
Ordinary Dividend: A dividend taxed at the shareholder's ordinary income tax rate, as opposed to the lower qualified-dividend rate.

Payment Date: The day distribution cash actually settles in shareholder accounts, typically a few business days after the ex-date.

Qualified Dividend: A dividend that meets IRS holding-period and source rules and is taxed at long-term capital gains rates.

Record Date: The date the fund reviews its books to determine which shareholders receive the distribution. Falls one business day after the ex-date.
Reverse Split: A corporate action reducing share count and increasing price — e.g. 1-for-10 leaves you with a tenth of the shares at ten times the price. Common after sustained NAV erosion.
Return of Capital: A distribution that returns a portion of the investor's original investment rather than earned income. Not immediately taxable but lowers cost basis.

SEC Yield: A standardized yield calculation defined by the SEC based on the most recent 30-day period, useful for comparing bond funds.
Sharpe Ratio: Return per unit of risk. Higher is better; a Sharpe above 1.0 is considered good, above 2.0 excellent.
Strike Price: The price at which an option contract can be exercised. Covered-call ETFs typically sell calls slightly above the current price.
Synthetic Exposure: Using derivatives (options, swaps, futures) to replicate the return profile of an underlying stock without owning shares directly.

Total Return: The full return of an investment including price change plus reinvested distributions — the best single measure of performance.
Tracking Error: How closely a fund follows its stated benchmark. Lower tracking error means more predictable index-like performance.
Turnover Ratio: The percentage of a fund's holdings replaced over a year. High turnover can create tax drag in taxable accounts.

Underlying: The stock, index, or asset that an option or synthetic ETF derives its value from — e.g. MSTY's underlying is MSTR.

Volatility Drag: The mathematical erosion of compounded returns from large swings. A -50% loss requires a +100% gain to recover.

Weekly Distribution: An income payout made every seven days, typically 52 times per year. The defining feature of weekly-pay ETFs.

Yield on Cost: Annual income divided by your original purchase price, not current market price. A more relevant metric for long-term holders.