Dividends are payments made by a company to its shareholders and are a portion of the company’s earnings. Corporations declare dividends after a board of directors approves a payment. Companies have the option of paying out dividends, using the money to re-invest in their business or keep it in a retained earnings account. Typically, a dividend is paid in cash, but it can be paid out in other methods like stocks.

A dividend’s amount is based on the percentage of company profits and on the company’s board of director’s discretion. Dividend payments are usually paid out quarterly, allowing shareholders more frequent returns on their investments. Generally, dividends are distributed out of a company's accumulated or current earnings.

Dividend yield is the rate of return a shareholder receives off the purchase of a particular stock. It‘s calculated by dividing the dividend amount per share by the stock’s current market price and is expressed as a percentage. A company’s dividend yield fluctuates as stock prices and dividends change.

The major advantage of dividends is that when investors buy into a company, they already know what to expect each quarter. Dividend payments give investors a steady return on an investment. Dividends are a great way for investors to receive passive income that is not reliant on the performance of the stock. Dividends also inspire confidence in a company because it reflects the company’s status. When a company declares a dividend, it’s a sign that the company has excess cash and has the confidence to return money to its shareholders.

Even though dividends could provide investors with a steady income stream, companies with high dividend payments are not necessarily paying higher returns. Companies pay dividends for different reasons and can come with volatility. Low-dividend yielding stocks can return the most value on an investment overtime compared to the traditional high dividend paying stocks. Investors can also benefit from reinvested dividends, when a dividend is an option, as it could result in more shares and eventually more returns.

In conclusion, dividend payments are payments made by a company to its shareholders out of its earnings. Dividend yield is the rate of return a shareholder receives off the purchase of a particular stock. Companies can benefit from dividend payments to investors by encouraging confidence in the business and allowing for steady returns on investments. Low-dividend yielding stocks can return more value to investors than high dividend paying stocks, and reinvested dividends could result in more shares and more returns.