When a corporation has successfully earned some profits, the corporation's board of directors can elect to give some portion of its earnings to its shareholders of common stock. Any such payment is called a dividend. Whatever portion of earnings remains in the company after dividends are paid is referred to as retained earnings.

Many large public companies try to pay dividends on a regular schedule, either annually or quarterly, and they often try to maintain the amount of dividends at a steady level that grows slowly from year to year. Other companies choose instead to reatain all their earnings for reinvestment into new lines of business, or into acquisitions of other companies, so as to grow their overall potential to gain more earnings in the future. They do so with the expection that their common stock share prices will grow commensurately.