Define: Synthetic Dividend

UK Accounting Glossary

Definition: Synthetic Dividend



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Full Definition of Synthetic Dividend


Synthetic dividend refers to a strategy whereby an investor creates cash flow using assets that otherwise may not have paid a dividend. The most common technique an investor can use to generate a synthetic dividend is selling covered call options on a security they hold.

This synthetic dividend strategy works like this: suppose an investor held a stock with good long-term potential for appreciation but wanted to generate some income. The investor could create a synthetic dividend by selling a call option against the security. The investor would essentially be selling the right to purchase shares of that security at a given price until the option expired. The proceeds from the sale of the option would be the investor’s synthetic dividend.

This strategy works to generate a synthetic dividend but investors need to be aware of the risk of losing securities in their portfolio against which they sell the options.


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Definition Sources


Definitions for Synthetic Dividend are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 6th February 2020.