So, if you are investing for income outside a registered plan, you should seriously consider holding at least some securities that pay dividends. That certainly means buying shares, but switching from interest-bearing investments to those that pay dividends can be done without a lot of risk. You would, for example, put your money into high-quality bank and utility company stock or solid dividend mutual funds. Now all that's well and good. It sounds too complicated to most people, but there's really no great mystery.
Dividends are a portion of after-tax profits paid to shareholders by corporations.
Dividends can be received by both common and preferred shareholders, the difference being that common shares usually represent a voting interest in the company, and their value rises and falls with that of the company. Preferred shares are almost always non-voting. The preferreds usually pay a fixed dividend, which is the key factor in deciding how much they're worth on the market. When people ask me about dividends, there are usually four basic questions. Well, for common shares, basic stock with a vote, the amount is chosen by the company's board of directors, and is based somewhat on how much profit money the company makes.