When you buy shares in a dividend-paying company you keep getting paid passive income just by holding onto those shares.
A dividend is a portion of the net profits of a corporation paid out to its shareholders. When you buy a share of a company, you are buying a small fraction of that business, and when a corporation pays dividends, you as a shareholder receive a portion of those profits.
American companies that pay dividends often pay them once per quarter, or four times per year. International companies often have less regular dividend schedules.
If you’re completely new to investing, a good way to think about dividends is to think about a profitable private business. If you own a gym, and the net profits on that gym are $100,000 per year, you have many options for that money. You can keep it all for yourself, and basically pay 100% of your earnings to yourself as a private “dividend”. Or, you can re-invest all of those profits back into the gym to increase advertising, or buy better equipment, or open a second gym. A third option, and likely the most common one, is to keep a percentage of those gym profits for yourself and to re-invest a portion of those profits back into the growth of the gym. Effectively, the profits you keep for yourself are your own personal “dividends”. When a corporation pays out a regular dividend, it means that the shareholders are dividing a portion of the profits and paying themselves a percentage of the profits at regular intervals. The company’s board of directors (voted for by the shareholders to represent them) decides whether to pay a dividend and how much to pay at any given time.
So in summary, by buying shares in a dividend-paying company, you will be paid a dividend on a regular or somewhat regular basis. You can spend those profits on anything you want- you can use it as passive income, or you can reinvest those earnings into buying more shares. After diligently investing a large amount of money, you may even reach the point where you can live entirely off of dividend payments- a purely passive income stream that allows you to focus on doing what you want to do while getting paid regardless!
One thing to keep in mind is that although dividends are usually pretty reliable, they are not guaranteed. A company can choose to stop paying dividends at any time, especially if it does not have enough profits to support its current dividend payout. Many companies have decades of un-interrupted dividend-paying history, but make sure you really evaluate a company before purchasing shares.
This site focuses in part on identifying great dividend growth stocks for your portfolio.