Final answer:
Dividends are one form of return for shareholders, representing a share of profits paid directly by the company. They are typically provided as a specific amount per share owned. The other main form of return is capital gains, which occur when an investor sells shares for a higher price than they paid.
Step-by-step explanation:
Dividends received by shareholders can be expressed in a couple of different ways. Primarily, dividends represent a portion of the company's profits distributed to shareholders.
For instance, if a company pays a dividend of 75 cents per share and an investor owns 85 shares, they would receive a total dividend payment proportional to their shareholding. This direct payment acknowledges the investor's stake in the company and rewards them for it.
Another form of return on investment for shareholders is through capital gains, which occur when an investor sells their shares for more than the purchase price. For example, buying a share for $45 and selling it later for $60 would result in a $15 capital gain. This increase reflects the asset’s appreciated value over time.
The expectation of receiving a rate of return on investment comes in these two main forms: dividends and capital gains, each with its mechanisms and implications for the investor's wealth.