What is a Dividend?

When a company makes a profit, it can do two things with the money.  It can reinvest it in the business (such as buying new equipment, paying off loans, saving it for later uses, etc.)  This is called retained earnings - money that the company is retaining for its use.

Another option is to share the profits among the stockholders.  Stockholders receive these profits based on the number of shares they own.  For example, a company sharing their profit of $3,000,000 among 1,000,000 shareholders will pay $3 per share.  Someone who owns 1,000 shares will receive $3,000, while someone who owns 5,000 shares will receive $15,000.