Stocks: shares, dividends, return.
A stock is a tiny ownership stake in a company. Its price moves up and down, and along the way the company may pay you dividends. The return on your investment is the sum of both pieces.
When a company sells shares of itself to the public, every buyer becomes a partial owner. Apple has about 15 billion shares outstanding; owning 100 of them makes you a 15-billionth owner of the company, entitled to your proportional sliver of its profits and a vote at its annual meeting. Most individual investors will never come close to a controlling stake in anything, but the math of ownership scales linearly: 100 shares is 100 times what 1 share is, and the return on a thousand-dollar investment scales accordingly.
Two things can happen between the day you buy a stock and the day you sell it. The price can move — up if the market thinks the company is worth more than it did when you bought, down if it thinks less. And the company may pay dividends — regular (usually quarterly) cash payments to shareholders, funded out of the company's profits. Your total return on the investment is the sum of both effects.
This lesson develops the share-price math, the dividend math, and the combined return-on-investment calculation. Lesson 5 will do the same for bonds (which are loans, not ownership), and Lesson 6 ties the two together with the question of how to mix them in a real portfolio.
Total return = capital gain + dividends.
Two sources of return are possible. The capital gain is the change in share price multiplied by the number of shares owned: if the price rises from $50 to $58, the capital gain on 100 shares is ($58 − $50) × 100 = $800. A capital gain is unrealized while you still hold the shares; it becomes realized (and triggers capital-gains tax) when you sell.
Dividends are regular cash payments the company makes to each shareholder, usually quarterly, on a per-share basis. If the company pays $0.50 per share each quarter for a year, the annual dividend per share is $2.00, and 100 shares receive $200 in dividends.
The total return on the year is the sum: capital gain + dividends. Divide by the original amount invested to get the return on investment (ROI) as a percent: ROI = total return / amount invested.
A year of stock ownership decomposed. $5,000 buys 100 shares at $50. A year later the price is $58 (capital gain $800) and the company has paid $2/share in dividends ($200). Total return $1,000 on $5,000 = 20% ROI.
A share is a unit of corporate ownership. The capital gain on a position is (sale price − purchase price) × shares, and the dividend income is dividend per share × shares. The total return is the sum; the return on investment (ROI) is total return divided by amount invested, expressed as a percent.
Words you'll see on every stock quote
- Share A single unit of ownership in a company. A typical public company has hundreds of millions or billions of shares outstanding; owning 100 is a small but meaningful (and tradable) position.
- Share price The dollar amount one share trades for. Determined moment-to-moment by buyers and sellers in the open market. The share-price ticker on financial news websites is the most-watched number in finance.
- Dividend A cash payment made by the company to shareholders, usually quarterly, on a per-share basis. Companies that pay dividends are typically more mature; younger, growth-focused companies often pay none and reinvest profits internally.
- Capital gain (or loss) The change in the value of the position due to share-price movement, not including dividends. Realized when you sell the shares; until then, the gain is unrealized and not yet taxed.
- Return on investment (ROI) Total return divided by amount invested, expressed as a percent. ROI lets you compare investments of very different sizes on the same scale: 20% on $5,000 and 20% on $5,000,000 are the same rate of return, even though the dollar gains differ by a thousandfold.
$5,000 in XYZ stock: one year of return.
"You buy 100 shares of XYZ Corp at $50 per share. One year later, the share price has risen to $58, and during the year XYZ paid $0.50 per share each quarter in dividends. Compute the capital gain, the total dividend income, the total return, and the return on investment."
Compute the amount invested.
Compute the capital gain.
Price moved from $50 to $58 — a rise of $8 per share. Multiply by share count:
Compute the dividend income.
$0.50 per share per quarter, four quarters in a year, equals $2.00 per share annually. Multiply by share count:
Sum for total return.
Compute ROI.
Divide total return by amount invested:
A 20% one-year return is excellent, well above the long-run S&P 500 average of about 10% per year. The decomposition reveals that 80% of the return came from price movement and 20% from dividends — a typical mix for a dividend-paying stock in a good year.
→ the comparable rateThree investments. Compute the return.
You bought 50 shares of ABC at $30 per share. A year later, the price is $36. ABC paid no dividends. What is your ROI?
You bought 200 shares of DEF at $25. A year later the price is $28, and DEF paid $1.50 per share in dividends over the year. What is your total return in dollars?
You bought 40 shares of GHI at $75. A year later the price has fallen to $68, but GHI paid $2.50 per share in dividends. What is your ROI (to one decimal place)?
Three fast questions before you move on.
Q1. What does owning a share of a company entitle you to?
Q2. Your total return on a stock investment is the sum of which two components?
Q3. If a stock's price stays exactly the same from purchase to sale but the company pays $1.20 in dividends per share, is the investor's total return positive, negative, or zero?
Owning vs lending.
A stock is a piece of the business itself. Owning shares ties your fortunes to the company's performance: when it does well, the price rises and dividends grow; when it does poorly, both fall, and there is no guarantee of recovery. Stocks have historically delivered higher long-run returns than safer alternatives (about 10% annually for the broad U.S. stock market since World War II), but with substantial year-to-year volatility — some years up 30%, others down 30%.
The math of this lesson scales transparently. 100 shares or 100,000 shares, $5,000 or $5,000,000 invested — the ROI percentage is the same as long as the per-share story is the same. That linearity is why ROI is the standard yardstick for comparing investments of different sizes.
Next: Lesson 5 introduces bonds, the lending counterpart of stocks. Where a stockholder owns part of the company and shares in its uncertain future, a bondholder has loaned the company money in exchange for predictable interest payments and a fixed return of principal at maturity. The math is different, and so is the risk profile.
Continue to Lesson 05Different angle? Need another rep? These are optional — tap any that look helpful.
What it means to buy a company's stock
Sal opens with the core concept — buying a share is buying partial ownership — and walks through how shareholders earn returns through price appreciation and dividends. Note: 2013 video, but the mechanics of stock ownership are evergreen.
Why Diversification Is The Only Free Lunch In Investing
Recent (2025) Richard Coffin video. Strong on dividend yield, total return decomposition, and the role of dividends vs price gains. Segues naturally into diversification material for Lesson 7.6.