A dividend is a portion of a company's profit returned directly to shareholders, usually as cash and most often on a quarterly schedule. Mature, profitable companies are the typical payers; younger firms tend to reinvest everything back into growth and pay nothing.
Dividends are declared at the board's discretion, not guaranteed. A company can raise, cut or suspend its payout, and a sudden cut is often read by the market as a warning about the firm's health. An unusually high yield can signal that investors doubt the payout is sustainable.
Reinvesting dividends — using each payment to buy more shares — turns them into a compounding engine, since future dividends are then paid on a larger holding. Over decades, reinvested dividends have historically made up a large share of total stock-market returns.
Worked example
A company paying a $0.50 dividend each quarter returns $2.00 per share over a year; on a $40 share that is a 5% dividend yield.
This definition is general education, not investment advice. Markets — especially crypto — are volatile and you can lose money. Please read our disclaimer and see our methodology.