How do dividends work and why do companies pay them to shareholders?

Dividends are payments made by a company to its shareholders, usually in cash or additional shares of stock. They are typically paid out of the company’s profits as a way to distribute a portion of earnings back to investors. Companies that generate steady profits and have a stable financial position often pay dividends to attract and retain investors, providing them with a regular income stream. Dividends are usually paid on a per-share basis, meaning shareholders receive a fixed amount for each share they own. While not all companies pay dividends, those that do are often seen as more established, providing a level of financial stability and confidence for investors.