A dividend is a small payment made to shareholders in exchange for their investment in a company’s stock. It is usually paid out of the company’s net profits. Dividends can be received in the form of cash or extra equity.
While the majority of profits are held by the company as retained earnings (money that will be utilized for the company’s current and future business activities), the balance might be distributed to shareholders as a dividend. Even if a company does not produce enough money to pay dividends, it may nevertheless pay them. They may do so in order to retain their track record of paying dividends on time.