Dividend Enhanced Convertible Stock - DECS

Convertible stock represents a kind of a hybrid between a stock and a bond. Like how a liger is a cross between a lion and a tiger. Or how a centaur is a cross between a center linebacker and a dinosaur.

A dividend enhanced convertible stock-or DECS-is like a liger wearing a tuxedo jacket and a top hat. Just that much more special.

The convertible stock works as a bond for the time being, paying the holder a fixed rate of return...say, an annual rate of 6%. But, unlike a normal corporate bond, the holder can transform the convertible shares into common shares under certain conditions. Like when the moon is full and Jupiter aligns with Mars. The debt instrument becomes equity.

The DECS goes a step further by including a premium dividend. The holder gets the 6% return, plus a certain dividend paid out in cash...plus the ability to convert it into common stock under pre-set conditions.