What are dividends?

Dividends refer specifically to portions of a company's earnings that are distributed to its shareholders. This distribution is typically made in cash or additional shares of stock, and it represents a way for companies to share profits with their owners. Dividends are an important consideration for investors, as they can provide a source of income in addition to any potential gains from selling shares at a higher price in the future. Companies may choose to pay dividends based on their profitability and decisions about how to reinvest earnings back into the business for growth or share returns with shareholders.

The other options do not accurately describe dividends, as they pertain to different financial transactions and not the distribution of profit to shareholders.