Final answer:
ABC Co. is paying quarterly dividends, which are a portion of profits distributed to shareholders like Ilene for a steady income during retirement.
While dividends are more stable, stock investments also involve potential capital gains, which can be significantly more volatile in comparison.
Step-by-step explanation:
ABC Co. is paying quarterly dividends of $1.30 per share to its shareholders, such as Ilene who relies on this for a steady income stream during retirement. Dividends represent a portion of a company's profits that are distributed to stock owners.
The amount received from these dividends depends on the number of shares owned. For stable companies like ABC Co., often in industries such as utilities or consumer goods, these dividend payments can provide a reliable source of income, particularly important for retired individuals who appreciate the lower risk and steady payments as opposed to the potentially higher but more volatile capital gains.
Firms have the option to pay dividends, which is separate from the potential capital gains achieved from selling stocks at a higher value than the purchase price. Over the years, the dividend yields from companies in indexes like the S&P 500 have fluctuated, from around 4% in the past to the more recent 1% to 2%. While dividends offer a more measured return, price swings in the stock market can lead to significant changes in the value of stock investments. This illustrates the dual nature of returns on stock investments – steady dividend income and variable capital gains.