What is a dividend?

• A. A loan paid by the company to its shareholders
• B. A share of a business' profits paid regularly to its shareholders
• C. The price of a share on the market
• D. The total revenue of the company in a year

Answer: (B)

A dividend is a distribution of a company's profits to its shareholders. It’s usually paid in cash or as additional shares, and it happens at regular intervals (like quarterly or annually) when the board decides there are enough profits or retained earnings to distribute. Dividends are not loans; they aren’t owed back to the company and don’t have to be repaid. They’re not the price of a share, which fluctuates in the market, nor is it the total revenue the company earns in a year, which is the money from sales before expenses. In short, a dividend is money returned to shareholders from the company’s profits.