Which term describes a distribution of a portion of a company's earnings to shareholders?

• A. Yield
• B. Dividends
• C. Margin Account
• D. Prospectus

Answer: (B)

Dividends are payments to shareholders funded from a portion of a company’s earnings. When a company earns profit and decides to share some with investors, it declares a dividend, usually paid in cash (often quarterly) or sometimes as additional shares. This distribution is how owners receive a direct return on their investment beyond any stock price appreciation. The other concepts don’t describe this payout: yield is a measure of return relative to price, not the act of distributing earnings; a margin account is a brokerage account that allows borrowing to buy securities; and a prospectus is a document that outlines details of a new issue, not earnings distributed to existing shareholders.