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. But you have to know your companies. Some have a policy of paying out a big chunk of profit to shareholders.