A dividend is a distribution paid by a company to its shareholders. The company's board of directors determines and declares cash dividends periodically – typically on a quarterly, semiannual, or annual basis. They can be paid to shareholders in the form of cash or as additional shares of company stock, though stock dividends are usually only issued when the board wants to reinvest cash profits to fuel future company growth. It is typically paid out of earnings or excess cash on the balance sheet.

Although some companies do experience financial difficulties that require them to reduce or completely stop their payment of dividends, the majority of dividend-paying businesses not only maintain the payouts that they establish but also attempt a policy of steady dividend increase for their investors. Some companies increase dividend payments quarterly, some annually, still others increase only as profits allow. Some companies even pay special dividends if earnings have been strong over an extended period of time.

Whenever the board of directors declare or make changes to a dividend payment, two important dates are also established: the record date and the distribution date. The record date is the date that the corporation finalizes its books for that financial period. Everyone who is listed in the books as a shareholder at the end of that day will be paid a dividend. After the record date, the stock trades ex-dividend (without the dividend). In other words, if the stock is sold, its price is reduced by the declared dividend amount because the purchaser won't receive the current dividend. The distribution date is the date that the shareholders of record are actually paid the dividend, generally several days to several weeks after the record date.