Annual return is simply what you get back each year from your investment each year. You owned Smooshem Ketchup Company last year on Jan 1. The stock traded at $50 a share. By New Year's Eve the stock was trading for $55. But it also paid a $2 in dividends through the year. Its annual return, in simple terms (i.e. not worrying about the time value of dividends paid at different times of the year) was $7 total from a base of $50 or 7 / 50 = 14%.