Final answer:
A dividend is a share in the company's profits paid out to the stockholders. It is proportional to the number of shares owned and represents one of the two primary returns on investment, the other being capital gains.
Step-by-step explanation:
A dividend is a share in the company's profits that is distributed to stockholders. When a company earns a profit, it can choose to reinvest that money into the business or distribute it to shareholders in the form of dividends. The amount of the dividend is proportional to the number of shares owned, so if a stock pays a dividend of 75 cents a share, an owner of 85 shares will receive a total dividend payment reflecting that rate. Stable companies like Coca-Cola and electric companies often provide dividends to their shareholders.
While dividends provide a direct payment to shareholders, investors may also earn money through capital gains, which occur when they sell their stock for more than they paid for it. These two forms—dividends and capital gains—represent the primary ways in which stock investors receive a rate of return on their investment.