CONTANGO Definition

CONTANGO is the commission paid by a buyer for the postponement of a transaction on a stock exchange when prices for future delivery are higher than those for cash or spot transactions. The opposite is backwardation.

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DIVIDEND CAPITALIZATION: Since most closely held companies do not pay dividends, when using dividend capitalization valuators must first determine dividend paying capacity of a business. Dividend paying capacity based on average net income and on average cash flow are used. To determine dividend paying capacity, near term capital needs, expansion plans, debt repayment, operation cushion, contractual requirements, past dividend paying history of a business and dividends of a comparable company should be investigated. After analyzing these factors, percent of average net income and of average cash flow that can be used for the payment of dividends can be estimated. What also must be determined is the dividend yield, which can best be determined by analyzing comparable companies. As with the price earnings ratio method, this usually produces a subjective result.

TOTAL RETURN is the rate of return on an investment or portfolio that takes into consideration both earned income and changes in market value.

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