What is a dividend?

A dividend is a payment made by a corporation to its shareholders, typically derived from the company's profits. When a company generates earnings, it can choose to reinvest those earnings back into the business for growth or distribute a portion of them to shareholders in the form of dividends. This payment serves as a reward for shareholders and reflects the company's profitability and financial health.

Dividends can be issued in various forms, including cash payments or additional shares of stock. They play a crucial role in investor decisions since many investors seek not only the appreciation of their stock holdings but also a steady income stream from dividends. Thus, understanding what a dividend is and how it functions within a corporation is essential for anyone studying finance or investing in stocks.