Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What do dividends represent in the context of stock ownership?

1. Fees paid for trading stocks

2. Money paid from profits to stockholders

3. Tax payments on investments

4. Trading commission charges

The correct answer is: Money paid from profits to stockholders

Dividends represent a portion of a company's profits that is distributed to its stockholders. When a company earns a profit, it can choose to reinvest that money back into the business or share a portion of those earnings with its investors. By issuing dividends, companies provide shareholders with a direct return on their investment, effectively rewarding them for their ownership stake in the company. This practice reflects a company's financial health and willingness to share earnings, which can enhance its attractiveness to potential and current investors. The other choices do not accurately describe dividends. Trading fees are associated with buying and selling stocks but are not a distribution from company profits. Tax payments relate to the taxation of income or capital gains derived from investments but do not involve the company passing profits to shareholders. Similarly, trading commission charges relate to the costs incurred when executing stock trades, rather than representing a share of earnings from the company itself.