What is paid to holders of common and preferred stock from company profits when the Board of Directors decides?

What is paid to holders of common and preferred stock from company profits when the Board of Directors decides?

• A. Stock options
• B. Dividends
• C. Interest payments
• D. Net income

Answer: (B)

Dividends are a portion of a company's profits that the Board of Directors chooses to distribute to shareholders, specifically those holding common and preferred stock. This payout serves as a way to reward investors for their ownership stake in the company. Dividends can be paid in cash or additional shares of stock and are typically declared on a regular schedule, such as quarterly or annually. The decision to pay dividends and the amount distributed are at the discretion of the Board of Directors, which takes into consideration various factors such as the company’s profitability, cash flow, and overall financial health. This practice is an essential aspect of equity investment, as dividends provide a tangible return on investment for shareholders in addition to any potential capital gains from increases in stock prices. In contrast, stock options refer to the right to purchase shares at a predetermined price, interest payments are typically associated with debt instruments rather than equity, and net income represents the total revenue minus expenses, which is not directly distributed to shareholders but may inform the amount of dividends declared.

Dividends are a portion of a company's profits that the Board of Directors chooses to distribute to shareholders, specifically those holding common and preferred stock. This payout serves as a way to reward investors for their ownership stake in the company. Dividends can be paid in cash or additional shares of stock and are typically declared on a regular schedule, such as quarterly or annually.

The decision to pay dividends and the amount distributed are at the discretion of the Board of Directors, which takes into consideration various factors such as the company’s profitability, cash flow, and overall financial health. This practice is an essential aspect of equity investment, as dividends provide a tangible return on investment for shareholders in addition to any potential capital gains from increases in stock prices.

In contrast, stock options refer to the right to purchase shares at a predetermined price, interest payments are typically associated with debt instruments rather than equity, and net income represents the total revenue minus expenses, which is not directly distributed to shareholders but may inform the amount of dividends declared.