What is a dividend?

What is a dividend?

• A. A loan from a bank to a business
• B. A payment made to shareholders from company profits
• C. The interest earned on savings
• D. A tax paid on corporate earnings

Answer: (B)

A dividend is a payment made to shareholders from company profits. This distribution of profit occurs typically in the form of cash or additional shares, rewarding shareholders for their investment in the company. When a company generates profits, it has the option to reinvest those profits back into the business for growth or to distribute them as dividends. Investors often view dividends as an important factor when evaluating a company as they represent a return on investment. Companies that consistently pay dividends are often seen as stable and financially healthy, as they can afford to share profits with their shareholders. In this context, the other options do not define a dividend. A loan from a bank to a business refers to a debt obligation rather than a distribution of profits. Interest earned on savings relates to returns from deposits in a bank, not from equity investments. A tax paid on corporate earnings is a financial obligation to the government, separate from profit distribution to shareholders.

A dividend is a payment made to shareholders from company profits. This distribution of profit occurs typically in the form of cash or additional shares, rewarding shareholders for their investment in the company. When a company generates profits, it has the option to reinvest those profits back into the business for growth or to distribute them as dividends.

Investors often view dividends as an important factor when evaluating a company as they represent a return on investment. Companies that consistently pay dividends are often seen as stable and financially healthy, as they can afford to share profits with their shareholders.

In this context, the other options do not define a dividend. A loan from a bank to a business refers to a debt obligation rather than a distribution of profits. Interest earned on savings relates to returns from deposits in a bank, not from equity investments. A tax paid on corporate earnings is a financial obligation to the government, separate from profit distribution to shareholders.