Buying shares of a company gives you an ownership stake, no matter how small, in that company. When a company pays a dividend it entitles you, as a shareholder, to a part of the company’s profits.
For example, at the time of this writing, Kimberly Clark (NYSE:KMB) pays a dividend that is equal to $4.64 on an annual basis. That means the stock pays shareholders $1.16 per share every quarter.
$4.64/4 = $1.16
The stock currently trades at $126.94 a share. Therefore, if an investor owns 200 shares of the stock, they would receive $232 as a dividend payment:
$1.16 x 200 = $232
Assuming the dividend was not increased and no more shares were bought or sold, the investor in this example would receive $928 on an annual basis from just a single stock.