What are dividends?

Dividends represent a portion of a company's earnings that is distributed to its shareholders as a reward for their investment. When a corporation generates profit, it can choose to reinvest that profit back into the business for growth or distribute a part of it to shareholders in the form of dividends. This distribution is typically paid out on a per-share basis, meaning shareholders receive an amount proportional to their holdings in the company.

When companies declare dividends, they often do so based on their profitability and financial health, as well as their desire to share earnings with investors. This practice can make a stock more attractive to potential buyers and provides a form of income for investors, making it a key component of many investors' overall investment strategies.

The other options describe different financial concepts: investments made by shareholders into a company relate to the capital that shareholders provide by purchasing stock; fees associated with stock trading refer to transaction costs for buying and selling stocks; bonuses paid to company executives pertain to compensation methods for management rather than a return to shareholders. Understanding dividends is crucial as they reflect a corporation's financial decisions and its approach to returning value to investors.