What type of dividend involves the distribution of cash to shareholders?

The correct answer is associated with cash dividends, which are direct payments made to shareholders in the form of cash. When a company generates profits, it can choose to distribute a portion of those profits to its shareholders as a reward for their investment. Cash dividends provide immediate liquidity to shareholders and do not alter the number of shares they own or the overall ownership structure of the company.

This practice is common among established companies that have stable earnings and wish to return wealth to shareholders. Cash dividends are typically expressed as a fixed amount per share and are approved by the company’s board of directors.

In other types of dividends, such as stock dividends, shareholders are given additional shares instead of cash, which can dilute the value of existing shares. Bond dividends are not typically a term used in finance, as bonds make interest payments rather than dividends. Equity dividends usually refer to an overall concept of dividends paid in equity or cash but do not specifically pertain to the distribution of cash.

Understanding these distinctions helps clarify why cash dividends specifically refer to direct cash payments made to shareholders.