Dividends represent a portion of a company’s earnings distributed to its shareholders, typically in cash or additional shares. They are often paid out by companies with stable earnings and a history of consistent financial performance. For shareholders, receiving dividends can be a sign of the company’s financial health and management's confidence in future earnings. These payouts are usually made on a regular schedule—quarterly, semi-annually, or annually—and the amount is determined by the company’s board of directors.

Dividends serve as a direct return from a company’s profits to its shareholders. When a company distributes dividends, it may indicate that it does not need to reinvest all profits back into operations. This action can reflect maturity in the business model. However, not all companies pay dividends—some prefer to retain earnings to fund expansion or innovation. Shareholders receiving dividends may benefit through regular cash flow or through reinvestment into more shares, depending on their preference and the company’s dividend policy.