A dividend is money a company pays you for being a shareholder. It's like they gift you money for owning a tiny piece of the company.
How it works
You own shares of a company. The company makes money. It decides to give you part of those profits. Money lands in your account. That's a dividend.
Not every company pays dividends
Young or growing companies don't pay dividends. They reinvest the money in the business. Mature, profitable companies do.
How much they pay
It varies a lot. Some companies pay 1% annual dividend. Others pay 5%. Sometimes more.
The psychological benefit
It feels good to receive money doing nothing. Your investment grows AND you get paid. It's the best of both worlds.
It's not free
The stock price usually drops the day they pay the dividend. It's not like you get money from nowhere. It's like the company says "here's part of your profit instead of reinvesting it".
Reinvest the dividends
If you automatically reinvest dividends in more shares, the compound effect is even more powerful. It's the secret of wealthy investors.
Taxes on dividends
In Spain, dividends are taxed. You have to declare them. But it's a good problem (it means you're making money).
Rich people's strategy
Many wealthy people live off the dividends from their investments. They don't work. They just live off what their stocks generate.