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1.
What are the two components of total return?
Dividends and capital gains. Total return includes both price appreciation (capital gains) and income (dividends).
2.
With a dividend reinvestment plan (DRIP) for stocks, dividends are reinvested automatically for you so that you do not need to invest them yourself.
True. This is one of their many benefits: autopilot investing.
3.
What ultimately drives price appreciation of stocks?
Anticipated dividends. Ultimately, what causes stock prices to go up is the anticipation of dividend payouts, even if investors understand that there will not be dividends for many years.
4.
When are taxes on an investment's dividends normally due?
In the year that the dividends occur. Dividends are immediately taxable. If they are earned in a tax-deferred account, then they will be due years in the future, but this is not the normal situation.
5.
Ultimately, dividends are behind capital gains.
True. The underlying reason for investors bidding up the prices of stocks is that they are valuing the dividends that the company will pay, even if those dividends do not materialize for a while.
