In more detail
The board decides each dividend; it is not guaranteed and can be cut. The dividend yield is the yearly dividend divided by the share price, and the payout ratio is dividends divided by earnings per share. To receive a dividend you must own the share before the ex-dividend date; on that date the price typically falls by about the dividend amount, because the cash is leaving the company. Reinvesting dividends buys more shares and compounds the return.
Why it matters
A very high yield is often a warning that the price has fallen because the market expects a cut. A dividend is not free money on top of the share's value: the total return is price change plus dividends, and dividends may be taxed in the year they are paid even if reinvested.
Example
A company paying $2.40 a year on a $60 share yields 2.40 / 60 = 4%. Owning 200 shares pays $480 a year, $120 a quarter. If earnings are $4 a share, the payout ratio is 60%. Reinvesting a 4% yield quarterly (1% each quarter) at a constant price grows the number of shares by 1.01^40 − 1 = 48.9% in 10 years.
Common confusion
A dividend is paid while you hold the share; a capital gain comes from selling it for more than you paid.