Final answer:
The claim regarding the percentages for the dividends received deduction is false; the actual rates for U.S. corporations are generally 50%, 65%, or 100%. Dividends are payments from a company to its shareholders as a share of profits, and their significance in an investor's total return has varied over time.
Step-by-step explanation:
The statement that corporations compute their dividends received deduction by multiplying the dividend amount by 10%, 50%, or 100% depending on their ownership in the distributing corporation's stock is false.
The accurate percentages used for the dividends received deduction under U.S. tax law are generally 50%, 65%, or 100%. The specific percentage depends mainly on the percentage of ownership a corporation has in the distributing corporation.
Dividends are a direct payment from a firm to its shareholders, reflecting a share of the company's profits. The portion of profits distributed as dividends has varied over time.
For example, the total annual rate of return an investor would have received from stocks in the S&P 500 index included both dividends paid and capital gains, with dividends contributing a larger portion in earlier decades compared to more recent times.
It is also important to note that stable companies, such as utilities or companies like Coca-Cola, are known to pay dividends, which can represent a significant form of return on investment, particularly when capital gains are not as high.