What are dividends?

Dividends represent a portion of a company's earnings that is distributed to its shareholders as a reward for their investment in the company. When a company generates profits, it has several ways to use those profits, including reinvesting in the business, paying down debt, or returning capital to shareholders. The payment made to shareholders is usually in the form of cash or additional shares, and is decided by the company's board of directors based on factors like profitability and cash flow.

This option captures the essence of dividends as a crucial aspect of returns on investment for shareholders, distinguishing it from other financial aspects like debt payments, operational funds, or employee bonuses, which do not pertain to shareholder returns.