Final answer:
Cash dividends are decided by a company's board and vary based on factors like profitability and shareholder expectations. Historically, dividend yields have decreased from an average of 4% to near 1-2% since the 1990s. Companies balance dividends and capital gains as part of their strategies to provide returns to shareholders.
Step-by-step explanation:
Cash dividends are determined by a company's board of directors and are influenced by various factors such as profitability, dividend payout policies, and cash flow constraints. Historically, from the 1950s to the 1980s, firms in the S&P 500 index generally paid annual dividends amounting to about 4% of the stock value. In contrast, since the 1990s, average dividend yields have been lower, typically around 1% to 2%.
It's also observed that the proportion of total returns from dividends versus capital gains has varied over time: smaller gaps in the 1960s and 1970s, larger differences favoring capital gains in the subsequent decades. Decision-making regarding dividends is typically part of broader strategic financial planning done by both private and public companies, considering shareholders' expectations for a competitive rate of return.