A dividend is a payment of (usually cash) from the corporation to its shareholders on a pro rata basis. For example, if the corporation has 10 shares outstanding, the board might delcare dividends of $0.10 per share, which would involve a payment of $0.30 to the holder of 3 shares and a total payment to all shareholders of $1.
Dividends may be thought of as one form of return on the shareholder's investment in the corporation, together with appreciation of the value of the stock.
The board can also declare dividends in stock of the corporation (a stock dividend) or in property other than cash. If the dividend is of the stock of another corporation, it is not a stock dividend but rather a distribution of property (this is how a spinoff is accomplished).
Dividends take assets out of the corporate entity, so they have the potential to harm creditors. This is because after a dividend the same liabilities will be outstanding but fewer assets available to satisfy them. Thus, creditors often demand a restriction on the ability to pay dividends in their contracts. In addition, the law restricts the ability to pay dividends, depending on the state based on concepts of equity insolvency or legal capital.
Dividends are declared by the board of directors as of a record date and then paid to shareholders on a payment date.