Final answer:
Dividends paid to stockholders are considered taxable income. They can be reinvested by buying more shares, and they are just one form of return on investment, with capital gains being another. The correct answer is option: a) are taxable.
Step-by-step explanation:
When a company pays dividends to stockholders, the dividends are taxable income. This means that stockholders who receive dividends will have to report this as income on their tax returns. A dividend is a way for companies to distribute a percentage of their profits directly to the owners of their shares. The more shares a person owns, the higher their dividend payment will be.
Stable companies, such as Coca-Cola and electric companies, often provide dividends to their stockholders, which can be a reliable source of income for people who hold these stocks for extended periods. It's also worth noting that dividends can take on different forms - for instance, they can be paid in cash, which then could be used to purchase more shares of the company, thereby reinvesting the dividends.
Furthermore, there exists a concept of capital gains, which refers to the increase in value of an investment, such as a stock, over time. For example, if an investor buys a share of stock at a low price and sells it at a higher price later on, the profit made is considered a capital gain.