That a company earns a lot of money doesn't necessarily mean the stockholders will benefit.

That a company earns a lot of money doesn't necessarily mean the stockholders will benefit.  The next big question is:

• What does the company plan to do with this money? 

Basically, it has 4 choices.

1.  It can plow the money back into the business, in effect investing in itself.

• It uses this money to open more stores or build new factories and grow its earnings even faster than before. 
• In the long run, this is highly beneficial to the stockholders. 
• A fast growing company can take every dollar and make a 20% return on it. 
• That's far more than you and I could get by putting that dollar in the bank.

2.  Or it can waste the money.

• It can waste on corporate jets, teak-paneled offices, marble in the executive bathrooms, executive salaries that are double the going rate, or buying other companies and paying too much for them. 
• Such unnecessary purchases are bad for stockholders and can ruin what otherwise would be a very good investment.

3.  Or a company can buy back its own shares and take them off the market. 

• Why would any company want to do such a thing? 
• Because with fewer shares on the market, the remaining shares become more valuable. 
• Share buybacks can be very good for the stockholders, especially if the company is buying its own shares at a cheap price.

4.  Finally, the company can pay dividend. 

• A majority of companies do this. 
• Dividends are not entirely a positive thing - a company that pays one is giving up the chance to invest that money in itself. 
• Nevertheless, dividends are very beneficial to shareholders.

A dividend is a company's way of paying you to own the stock.  The money gets sent to you directly on a regular basis - it's the only one of the above 4 options in which the company's profits go directly into your pocket. 

• If you need income while you're holding on to the stock, the dividend does the trick. 
• Or you can use the dividend to buy more shares.

Dividend also have a psychological benefit. 

• In a bear market or a correction, no matter what happens to the price of the stock, you're still collecting the dividend. 
• This gives you an extra reason not to sell in a panic.

Millions of investors buy dividend-paying stocks and nothing else. 

• Compile a list of companies that have raised their dividends for many years in a row. 
• In Wall Stree, one company has been doing it for 50 years, and more than 300 have been doing it for 10.