Amanda and Jessica's plans require they attract investors who are willing to buy their stock. They hire a firm to handle the Initial Public Offering (IPO) of their stock, when it will be made available for anyone to invest.
People buy stock with one primary goal - to make money. There are two ways a stockholder makes money.
The first is through an increase in stock price. If a stockholder buys 1,000 shares of a stock at $20 it will cost $20,000. If the stock later rises to $30, the stockholder can sell those 1,000 shares for $30,000 and make a profit of $10,000. This is called a capital gain.
If the stock were to drop to $15 instead, when the stockholder sold those 1,000 shares,it would only be for $15,000, which means the stockholder lost $5,000. This is called a capital loss.
The other way a stockholder makes money is through DIVIDENDS. If a company is profitable, it will share some of those profits with the stockholders. For example, a company posts a profit of $5,000,000. There are 1,000,000 outstanding shares of stock. By dividing those profits equally among the shares, they will pay a dividend of $5 per share. A stockholder who owns 100 shares will receive $500 in dividends while a stockholder who owns 20,000 shares will receive a check for $100,000!
Of course usually companies don't distribute ALL their profits. They keep some of the profit for a variety of reasons. These are called retained earnings.
Dividends are paid regardless of a stock's price. In an ideal situation for an investor using the above examples, he'd make a profit of $15,000 ($5,000 from the dividend, then another $10,00 from selling the stock after the increase in stock price).
Some companies share their profits through dividends, while others do not. Coca Cola (NYSE: KO) has paid a dividend four times yearly since 1920, while Apple, Inc. (NASDAQ: AAPL) has gone years without paying a dividend before its most recent announcement in July 2012.
Remember that nothing is guaranteed! A company's stock could go down. A company may not make a profit and therefore would pay no dividend. That is the risk that every stockholder faces when they invest.