One can think of a dividend as the company selling a tiny portion of your holdings to give you cash now, along with an income tax liability.
You could think of it that way, but you would be wrong by accepted definitions. Dividends* come from free cash flow.
To the OPs question, a better but imprecise way to think about it would be that the companies is paying owners (shareholders) a portion of profits/earnings directly rather than holding them or reinvesting in the company.
*If the company doesn't have adequate FCF, the dividends will be reclassified as Return of Capital. In that case Pizza Steve's definition is correct. But this is relatively rare, and generally a warning sign in regards to a company.
Pizza Steve's second point is correct though. In the current tax situation of the US, share buybacks are a more tax-efficient use of money for a company.
Edit: There may be some utility in
thinking about it the way PS does, but it's not technically correct.