A dividend represents the distribution of a reward, usually in the form of cash, to a firm’s shareholders paid in exchange for the shareholder’s investment in the company’s equity. A dividend is managed by a company’s board of directors and typically paid from a company’s net profits regularly on a monthly, quarterly or annual basis.
Companies still make dividend payments in periods when they are not profitable to maintain a previously established track record of regular dividend payments. Payment of dividends to shareholders in times when the firm does not generate sustainable profits prevents widespread selloffs from investors who previously held shares in a company’s equity because of the predictability of its regular dividend payments.