Final answer:
The most common form of dividend is cash dividends, where a company pays part of its profits to shareholders based on the number of shares owned. Stable companies often offer these dividends, and decisions about dividend payments are made by a firm's board of directors.
Step-by-step explanation:
The most common form of dividends is cash dividends. When a company pays out cash dividends, it is sharing a portion of its profits directly with its shareholders. The amount of dividend a shareholder receives is proportional to the number of shares they own. For example, if a dividend is declared to be 75 cents per share, an owner of 85 shares would receive $63.75. Stable companies, such as Coca-Cola and electric utilities, often provide dividends to their shareholders. These dividends can be seen as a return on investment and can encourage shareholders to hold their stocks for long periods.
Decisions about issuing stocks, paying dividends, or reinvesting profits are typically made by the board of directors of a company, which can consist of both private and public firms. The decision to issue dividends is often based on the company's profitability, cash flow, and financial strategy. It is a critical component of a firm's relationship with its investors and can influence the company's stock price. The rate of return on stock investments can come from dividends paid out and/or capital gains realized when selling the stock at a higher price than it was purchased.