Dividends

When a company earns a profit, the board of directors may opt to distribute a portion to shareholders (investors) in the form of dividends. If so, investors receive a fixed amount for each share they hold - for example, £0.01 pounds per share. Therefore, the more stock an investor holds, the more dividend income they would receive.

Usually dividends are paid in cash on a per-share basis, but sometimes they are distributed in the form of company stock. This is known as a scrip or bonus issue.

Instead of issuing dividends, smaller companies will often choose to reinvest the bulk of their profits for future growth. However, bigger, established companies are more likely to pay regular dividends.

Capital Gains

Stocks may increase in price over a period of time and the amount by which they increase is known as the capital gain.