Final answer:
Portersfield Products' additional dividend of $2 per share is classified as a special dividend, a one-time distribution out of excess cash or significant profits separate from the normal dividend cycle. Investors can receive returns as dividends or capital gains.
Step-by-step explanation:
The additional $2 per share that Portersfield Products is paying out this year, over and above its normal dividend, is classified as a special dividend. This occurs when a company decides to pay out extra funds to shareholders from excess cash on hand or from significant profit gains. Unlike regular dividends that are often expected to be paid out periodically (like quarterly or annually), a special dividend is typically a one-time payment to shareholders.
A firm's recognition that investors expect a return on their investment can come in the form of dividend payments or capital gains from selling the stock at a higher price than purchased. A steady profit-sharing, like dividends, is appealing for investors who prefer direct and more predictable returns, while others might be more attracted to the potential of a high capital gain.
For instance, purchasing stock in a well-established company such as Wal-Mart at $45 per share and selling it at $60 per share would result in a capital gain of $15. Whereas, if a company pays a dividend, as Portersfield Products is doing, shareholders receive a portion of the company's profits in direct payments, proportionate to their shareholding.