Final answer:
The equity dividend rate is the percentage of stock value that is paid out in dividends, which has trended from about 4% in the mid-20th century to 1%-2% recently.
Dividends are part of the total return on investment that also includes capital gains, and investors often diversify to manage risk.
Step-by-step explanation:
The equity dividend rate is the percentage of a company's stock value that is paid out to shareholders in the form of dividends.
Historically, companies in the S&P 500 index paid annual dividends at about 4% of their stock value from the 1950s to the 1980s.
However, since the 1990s, the dividend rates have decreased, often hovering around 1% to 2%.
Despite fluctuations and trends in the stock market, dividends have remained a form of direct payment from a firm to its shareholders, reflecting a portion of the company's profits relative to the number of shares owned by the investor.
Dividends play a significant role in the total annual rate of return for investors, which includes both the dividends and capital gains from increases in the stock's value.
While dividends have remained relatively low, especially since the 2000s, capital gains have sometimes constituted a larger share of the total return.
Investors often seek diversification, which means investing in a wide range of companies to reduce risk, and consider both dividends and potential capital gains when evaluating their investment strategies.