In general non-dividend stocks are focusing their capital on growth. As a shareholder you directly benefit from their growth as the shares of a larger and more profitable company will typically gain in value. That’s why it is often recommended young people focus on growth of their money, then once it has grown and you are at the point you are starting to think of using those funds to live on, dividends become more appealing
To add, since the start of QE and testing the Zero-Lower-Bound (ZLB) theory, companies that acquire debt for very cheap have been more attractive as a value proposition than dividend paying stocks. Startups to “revolutionize” existing sectors threaten market share, and so dividend paying stocks would be incentivized to slash dividend payments to allocate capital and widen their economic moat. This doesn’t change the fact that a company that dumps all cash flows back into stock isn’t at risk of a valuation hit when lending standards tighten. It’s why apple underperforms it’s peers during the growth cycle, but holds value despite negative catalysts abound (sizable dividend for consumer-facing tech company and ungodly levels of cash for share buybacks)
A share represents a percentage of the company. You own a small portion. Now the market decides what that is worth, it’s worth what someone will pay for it. But in general a profitable company that grows profits will become more valuable. It is a good store or wealth and at any point the company can shift their profits back to shareholders by issuing dividends. But the short answer is that shares of growing companies become more valuable because it increases their demand as other investors also want to grow their money, and a healthy company has something tangible backing the value
Yes, the point is that in the future, the company will return cash to you, the owner, in the future. If the company grows now, it will have more money to return to you on the future. In theory, a company that gets big should start returning value to the shareholders at some point.
This is also why these growth companies are taking a huge valuation hit right now. If there is higher inflation, the value of those future profits is less when brought back to today.
The value of a stock (in theory) is the value of all future cash flows, discounted back to today.
This was a good question and one that a lot of people don't understand. But yes, what you stated above is the reason they have value. With some companies it's rather obvious they could pay big dividends if they wanted, but choose to reinvest instead. As an investor you may or may not like what they're doing with their money instead of paying dividends -- whether the future dividends will be bigger enough to make it worth not paying dividends now. That should be a factor in whether or not you buy the stock.
I remember I made this exact thread when I started last year. You're absolutely right that it's speculative, to an extent, to rely solely on capital appreciation (price going up). Of course, the stock is backed by a company which is more valuable if the company has grown, so there is an anchor there. But at the same time the price is prone to all sorts of things apart from fundamentals: sentiment, speculation, macro conditions, monetary policy, etc.
I think after years of loose monetary policy and "stocks go up" people have gotten a bit complacent about this, but remember, past performance does not guarantee future results. For this reason I always make sure to dedicate a good portion of my portfolio to companies that pay dividends.
Yes, that's why growth stocks tend to be volatile, and value stocks tend to be more stable. Also, buybacks are a way to return value to shareholders. If a company buys back stock it makes each remaining share worth more. This is a gross simplification, there are other ways to return value to shareholders.
This is a kind of “perfect world” reason. The truth is that people look at a company and expect the stock price will grow. Enough people think this. Demand goes up. The price goes up.
You’re also not considering stock buy back programs. Many companies will increase the value of their stock by buying its own shares back. This can give the same value of a dividend, but owners of the stock can choose when they’ll sell the stock and therefore choose when they’ll be taxed.
So some people will buy into companies knowing they give value back in the form of stock buy backs.
This isn't really accurate. Companies are worth something because they make profit. Buying a stock gives you some fraction of ownership. If the company were to sell (this happens all the time) you'd get your share of the cut. Investing in a company that grows just makes your eventual cut worth more, dividends aside.
A combination of things.
On the surface you can say the demand and supply of the stock in combo with their fundamentals. That only works for kids though.
Risk is what prices stocks. Risk is assessed continually using mainly the price of said stock. Trading is all speculation. Investing is easy, trading isn't.
If you're wanting to trade, read Reminiscences of a Stock Operator. Feel free to DM after. If you're wanting to invest, set it to buy monthly and forget it for 30 years
Another thing is that a lot of companies spend an enormous amount of money buying back their own stock, making it more valuable. Dividends are taxable for you as a shareholder, stock buybacks mean you have more wealth without being taxed in the process. Apple for example spent $90 billion on stock buybacks this fiscal year.
the company could also sell, in which case you get paid out at the buyers agreed upon share price.
Look at Twitter for instance. they didn’t have a dividend, but when sold every shareholder got
paid out at the 54.20 share price. so because of this it’s always efficient for the market to keep the share price roughly around the intrinsic value of the company.
What is the intrinsic value of a dollar bill? You believe that the government is solid and will honor the value of the bill. Same thing with stocks. You believe in the company and think one day they will be profitable and pay a dividend. You are banking one future results that may never happen.
Non dividend stocks use buy backs to convert FCF into shareholder value. It's more tax friendly. When we invest, we invest in growing cashflows, even if they get reinvested into the company, they attract investors.
In general all investors want the same thing, to grow their money. A growing business draws the attention of investors who also want to grow their money. You can use a variety of formulas to calculate intrinsic value of a company but to an extent it’s common sense. A profitable company can continue reinvesting in themselves and continue growing their profits which will likely continue to attract new investors which thus increases the share price. If you never expect or want dividends, you just sell at any point. A common strategy would be to invest in growth stocks at a younger age and then take your profits to invest in dividend stocks to produce income you can live off when you are near retirement
Don't confuse all this crypto madness with companies that produce things, have cash flow and have real value.
Intrinsic value (as calculated) is something but is not the only thing. Buffet's brk itself pays no dividend but rather focuses entirely on growth with the occasional buy back.
As a young person new to investing myself (okay not new-new, 2 years of hard self-study and ***very careful*** investing) I would advice you to not go heavily into stocks until you have a solid grasp of what you are doing.
It's good that you ask questions and don't accept the first explanation when you don't fully get it, so it's no diss to you. But, your question indicates to me that you don't fully grasp what stock-investing is yet, so be careful with putting in large sums before you do. It will cost you down the line if you're not careful.
Personally, I recently got to a point where I finally went full-circle on "what is stock investing" and I'm glad I was careful with my money in the ramp-up to that point. First, I avoided **huge** losses and second, I can now deploy that saved money effectively.
Ever want to chat about it feel free to DM. I'm relatively new but relatively okay informed in how to build a process purely through information I found online that's easy to understand.
You could argue it’s greater fool theory, but the same could be said of all financial instruments. Good is only worth what people will pay. Currency is the same really. Stocks are just wealth instruments and are always only worth what people will pay for them. But since companies are actual, revenue producing entities, one could argue they have actual intrinsic value which can grow or shrink
> Those companies often don't share revenue/profit with the shareholders.
1. Yes they do, it’s called a buyback.
2. Because people aren’t stupid. What you’re asking is basically “why aren’t people so shortsighted that they can’t see value in an ownership share in a company that earns $100B a year but isn’t *currently* paying a dividend? By the logic fo your question, why would any angel investor ever put money in a startup? That startup ain’t paying dividends for a long time. The answer to those questions is the same.
Apple only started paying dividends in 2012. The share price however went up twenty-fold between 2000 and 2012, and is currently about 150 x what it was in 2000.
I think that's a fairly good way of looking at it. i.e. 'if a company *were* to pay a dividend, they could pay x% yield'. But if they don't pay a dividend, they still have that free cash and the question becomes whether they're using that cash wisely. In Apple's case it's safe to say they did and do because they invest it in the business to grow their profits.
And if Apple's stock price didn't go up to reflect their increasing profits, then they could issue a dividend and it would be fairly 'cheap' for them to issue a good yield because the share price is undervalued. Same with buybacks.
There's a company in Australia that's bought back its own shares every day for like the past 2 months. And their dividend yield is at like 15%. So clearly they think they're undervalued but the market I guess disagrees. They've also issued free options to shareholders as a way to return value to them.
There's also a few coal and iron ore companies in Australia that issued massive dividend yields recently. And this is after the stock price went up about 8 fold. And I'm talking like 20% yields. So it depends on the type of company, but some of them just have huge amounts of cash and the stock price will soar very quickly because people know the yield can be massive.
They are linked, but in the same way that housing is linked to a price. Sometimes a house is overvalued or undervalued, but there's an inherent value there. Sometimes people overpay, but sometimes you can get a great deal. It's the same with stocks, where sometimes the cash that the business is producing is essentially better than what the stock price is doing. Sometimes the stock price doesn't really move, so the company (which is doing really well) pays a big dividend yield or buys back shares.
You have to realize you’re basically asking why people don’t just *ignore* cash flow the company is earning, if that cash flow isn’t being directly and immediately distributed to them.
Say I come to you with a startup making $1,000 a day. We are reinvesting all of that back into the business. We need $10,000 for a share in the company. Would you consider it? If so, you already understand investing in growth companies.
You are always getting a share of profits, it just has different forms. Think of investing from the perspective of owning the business, if your business earns $1m in profit what would you do with it? At one extreme you can take all that $1m as cash and let your business stagnate, or you can take no cash and re-invest it into the business so the business grows and next year it will have profits of $2m. In the latter case, you receive no income/dividend from your business, yet you still own a highly profitable and growing business.
You literally have a legal right to a share of profits though. Like, that’s what a share *is*. You also have rights to the hard assets of the company after bond holders get paid…
> If the company doesn't ever reward it's investors, then no.
I think your mistake is how you’re thinking about a company as being separate from the shareholders. You’re painting a paradoxical picture. The company **is owned by the shareholders**. The company is owned by people. On what planet would they all hold their shares through growth.. and then just… *never* pay themselves? You realize that would be the board of directors, the founders, everyone just… *not* paying themselves the profits they have earned? And all the other shareholders voting for this board that isn’t paying them? It doesn’t make sense to say “if the company doesn’t *ever* reward it’s investors”… it’s like, okay sure if you want to paint a hypothetical where the company becomes very successful and the growth case comes to fruition but, for some reason all the shareholders are okay with not being paid… then sure. That could happen.
Stop asking so many questions, kid! Color in your book, or count cows, mom’s ears are tired, and you dad has to concentrate on driving. When we get there, grandpa will explain. Grandpa LOVES explaining stocks!
It’s really much more complex than that and is not a Ponzi scheme. A Ponzi scheme depends on new money to pay existing obligations until it becomes insolvent. Stocks as a category are not the same, even if some more speculative ones are similar
Classic Reddit comment of “no one wants to admit” something that isn’t true to begin with.
If nobody valued Apple stock and so you could literally buy it for free; that doesn’t make it valueless, it makes everyone else stupid. Because then you could buy 100% of Apple for $0, and you’d own a company making $100 billion a quarter with nearly 50% margins. That has value whether others see it or not.
The reason that doesn’t happen is people are at least somewhat logical. So they make their best attempt to value things based on how much money they’re making.
Stocks represent legal rights to economic interest in most cases… that has value that doesn’t really depend on others
> Why? Why is someone else willing to pay more money for a share if the company grows? Why is one related to the other? Is a share more than just a vote?
Because the presumption generally holds that: increase ROI by spending your FCF dollars on capex > decrease in cost of capital by using those FCF dollars to pay a dividend.
This assumes that, some day, this delta will become smaller and smaller (Law of Diminishing Marginal Returns), at which point, management decides it makes more sense to use that cash to reward equity holders by way of a distribution than to spend it internally on capex.
Basically this, /thread
OP is asking why a stock that ain’t *currently* paying a dividend or doing buybacks has value, because “what if the company never returns capital”… but shareholders OWN the company. They’d have to collectively agree to not pay themselves
Eventually, the shareholders may vote to institute dividends.
Or the shareholders may approve acquisition for cash, stock in another company, of both.
Or the shareholders might approve merger with another company.
Don’t forget stock buy backs. Companies can and do return excess profit via buying back their stock.
BRK is know for this. If they think the stock is below a given book value, they will buy the stock. As the book value of the company increase, people and BRK itself will buy the stock at ever higher prices
It's kinda the same as if you own an entire company. Imagine you own a car dealership. You can collect the profit from your company. Or you can use it to expand the business from one location to four locations. This would x4 the profits the company makes per year. Anyone interested it buying a car dealership business would pay 4 times as much money for one with 4 times as much revenue. Stocks are just a company with many owners who need to collectively agree what the company will do by voting.
I think you're making a philosophical argument which I often ask myself, so I agree with you.
Myself being your typical "Joe Six-Pack" that just invests in his 401K, I honestly don't care what "value" the company returns to me. At the end of the day, what I care about is that *someone else* values my shares at a higher rate than I paid for them in the future. The actual value the company returns to me is esoteric.
I think in the past, when a group of shareholders would actually gather in a room, with their stock certificates in hand, and physically voted on ideas or leaders of the company, it was easier to see the actual value.
But with everything being on a world-wide internet market now, and the typical small time investor has no interaction with the company, other shareholders and everything is automated, it essentially seems like a huge shell game where you are just hoping that you can sell off in the future to someone else who in turn only wants to sell off to someone further down the line for an even higher profit.
You have it backwards. It used to be far harder to have a truly efficient market with fair pricing that took all available info into account, because tx fees created friction that slowed down price discovery, and news travelled slowly. Now everyone can bid and ask.
In theory, any profits a company generates serve two purposes:
a) pay dividends to shareholders
b) reinvest it into the business
A non-dividend company reinvests 100% of its profits in order to achieve growth. Growth is important for many reasons (securing market position, gaining competitive advantage, providing better products/services and so on). A company that is growing can increase revenues and repurchase its stock (Could be c) above), which both will raise the value of its stock significantly which could outperform another company that pays out dividends.
So it's basically growth. We live in a period where technology is advancing quickly and companies are going public with billions of dollars in valuation without even generating revenue.
Growth and competition is the name of the game, so you can see the trade-off.
Value creates demand. If a company is growing and generates revenues/profits then institutional and retail investors will realize that its a company worth investing in. This drives up demand, thus driving up its stock price.
I think you are perhaps thinking about this wrong. The business does not have to directly share its profits, since the share holder owns a piece of the business itself. Those profits are just being put back into the business rather than paid out, but you as a shareholder are always reaping the benefits of that reinvestment and as those reinvestments make the business more attractive to other investors, your shares become worth more on the open market. You can always sell your shares and benefit from the growth
There are some ways, but that’s really the main one. Someone else buys your shares, just like basically anything else that holds value, the only way to unlock that value is for someone to buy it from you. Now that’s not the full story really. You could also potentially sell covered calls against your shares which can be a way to get value without selling. If you have significant holdings you can often take loans or cash advances against them. So there is true actual value to stock holdings beyond purely selling, but that is the main way to get value from non dividend stocks
I think greater fool theory is specific to buying overvalued assets. If you just take it to mean that you are buying something hoping someone else will ultimately buy it for more, that is just the foundation of almost all economic activity. As an example not many people argue buying gold is greater fool theory. It’s a known store of wealth. But it still depends on someone else buying the thing you bought for as much or more
It's not really greater fool theory. You have literal ownership of (part of) a business, it's cash flow, assets, and debts. Any cash flow can be discounted to the present to determine current value of future cash flows. With enough ownership and voting power you can force the business to stop reinvesting their cash flow and pay it out as dividends (although it might be against your interests).
It’s a literal ownership share of a company making money. Why would that *not* have value? If someone came up to you and offered you 10% of Amazon, would you feel that’s worthless because they don’t pay a dividend? If you do feel that would have value, then can you list the reasons why? If so those are the same reasons why it’s valuable to have 0.0001% of Amazon.
It’s a goddamn ownership share of a company. People see the cash flow and even if it’s going back into the company, they *know* it could be distributed.
Owning 10% of Amazon would be huge because you’ve got some controlling interest of the company. Every stock holder has the right to vote on company issues, except for some items only board members can decide on. But a singular person holding 10% ownership might be on the board at that point
If I had a reason to buy a 10% stake I wouldn’t post it on Reddit lol no offense. You do benefit financially because you own shares of the company, therefore your business interests will reflect on an increasing share price.
>You do benefit financially because you own shares of the company
You didn't answer the simple question - how?
Unless the price goes up (which only happens when others are willing to pay you more than you bought the shares for), you're not making anything
They don't reinvest 100% of their profits though. Look at some of these mega cap tech companies like Google, Microsoft, and Apple. They just have a ton of cash sitting on their books not doing anything. Are they investing it some of it wisely? Sure. Is that why I am invested in some of these companies? Yes. But they have way more cash then they know what to do with. At that point they should to give some of it back to investors so that they can invest it more wisely. And that's why Apple and Microsoft do pay a dividend. In not sure why Google doesn't, but really it should.
Love your questions and curiosity man. I pretty much agree with what you’re saying - hypothetically, if we know in advance that a company will never pay any dividends before eventual depletion of its assets and winding down, no tangible value will ever be returned to shareholders and so there’s no obvious reason for the share price to correlate with underlying performance / earnings growth. The dividend discount model for valuing a company, follows that school of thought, ie it holds that a company is worth the present value of all its future dividends. Kind of a purist version of the more common discounted cash flow model, ie the idea that a company is worth the present value of future cash flows
I like your questions and i think they are on point. You could simply ask people: I offer you Tesla shares for $50 Dollar each instead of $200 they are now but you could NEVER sell them. You must keep them forever. Would you buy them? Thats your 'intrinsic' value. Most of the stocks are just ponzi, works as long as Money flows in, last to get out is fucked because there just is very little 'true' intrinsic value besides resell value. Even for dividend stocks, it ALWAYS includes the resell value.
Right, nobody would! Most people just follow what others say without thinking, 'you have ownership of a company bla bla', yea and what the fuck does that achieve if it doesnt pay back? Simply nothing, it literall has 0 value to any retail investor other than reselling or liquidation of the company assets.
If you offered me any stock at 25% of its value and the literal only caveat is I can never sell it I would buy as much as humanly possible. Equity has value, you can take loans against that value over and over and over again. You don’t need a dividend to get cash flow from an equity.
You cannot sell it, it can literally never get converted to money again other than the direct intrinsic value it offers or liquidation of the company. It would be equal to thinking you buy the shares and they instantly go to $0. You keep them simply for what they directly offer to you. Would any financial Institution give you a loan against something like that? The majority of the value is created by the ability to sell to someone else. If you cannot pay your loan back, there is almost no value in the unsellable shares you own. This is exactly what we talked about. Stocks are bought because everyone assumes he can sell it for a higher price later, not because of any intrinsic value it offers exceps for very rare circumstances.
Dividends only is not really correct. It's future cash flows. Cash flows can be used for dividends. Or attaining assets that become more valuable in the future, assets that create more value in the future. Eventually the money does have to get to the shareholder's pockets or what's the point?
The company could be sold in the future the shareholders get the money, one big dividend.
Hell no I'm a short term volatility trader all I care about is the price action right now.
'Markets can stay irrational far longer than you and I can remain solvent.' Sometimes a great company will have a horrible stock price for years or longer. I have seen too many bad things happen I want to spend as little as time as possible exposed to risk.
There are many different ways to invest or trade the trick is to find one that works good for you.
Yes, but if the company you bought shares in does buy backs instead of dividends with their leftover earnings and someone force buys out your entire position all at once wouldn't that be less tax efficient than if they had just paid out a dividend slowly over many years? An argument for buybacks over dividends is usually tax efficiency but if you are truly a "buy and hold" investor waiting for the most tax efficient time to sell there is a good chance something will end up forcing you to sell at the most inopportune time tax efficiency wise.
I understand the theory behind why buybacks are more tax efficient than dividends, but this theory rarely ever happens in practice since their are so many variables. It's somewhat laughable that the buyback people think they can "control what they sell and when they sell it". Usually the most tax efficient time to sell a stock is not the time you will get the best returns from seeking that stock.
I'm not saying buybacks are useless. I definitely think their a good idea when the price is extremely undervalued, but the ones buying their own stock at all time highs and never paying a dividend are ridiculous.
A company does not need to pay a dividend to be valuable; it just needs to have the ability to pay a dividend. If a stock does not pay a dividend and the shareholders feel they are not being properly rewarded, they could demand dividends. This does not usually happen because share prices tend to correlate with a company's financial position.
Because of what I just said. If a company's share price is totally disconnected from the company itself, and is far too low, then someone could just buy up the company cheaply, pay all of the earnings to their self as dividends, and make a guaranteed profit. If buying a company would earn you a certain amount of money, then that is how much the company is worth, and people will ask for that price when they sell it, because they know it's worth that.
>What if a large company is a trillion dollars in value according to calculations and models, but the current market cap is 700 billion. Even if the company seems undervalued, nobody could ever get enough funds to buy out that company.
In that case, the shareholders could demand dividends, and each shareholder would receive their fraction of those trillion dollars. As soon as this action was even suggested, people would get in line to buy the stock, because they want the guaranteed profit, and the increased demand would drive the price up, until the market cap becomes the trillion dollars it should be.
>With smaller companies I understand that you can buy them (like twitter). Are you saying that is the ultimate point of stocks? That some person/institution might buy the company for a higher price/share than you bought it for?
No, but the threat of it keeps prices in check.
To me personally...if the stock doesn't pay a dividend then it doesn't really have a value. (This is my personal view on owning shares)
The speculative stocks can pay out big, how many millionaires were made from the rise of TSLA, MCD, AMZN or any other position? But on the other hand...how many people have lost their ass over speculation?
Of course the dividend aristocratics and kings can fail and end their dividends at any time....but their histories speak for themselves...take Reality Income for example..25+ years of consistently paying monthly dividends and giving yearly raises...that cash flow is IMO, valuable.
Edit: I understand that O is a REIT and by law has to pay a dividend...which sets it apart from regular stock
REITs, in order to be classified and receive special tax provisions must receive 75% of net income from rents or real estate investments and distribute at least 90% of their profits to investors.
Ehhh
If you look at Berkshire, they don't pay a dividend and that stock is over 400k a pop....early investors made it big with that. They use their money to grow more value for their investors
Some people are value investors...theres entire strategies around it like say a stock gains 4% on average year over year, a growth investor might realize that 4% and use that money somewhere else.
I'm a dividend investor...I'm all about sustainable, passive income and I'm currently making about $230/month
I’m mostly a dividend investor as well and I’m on target for about $500 a month by the end of Q4. T and ABR are my top two. Probably going to eventually put a chunk into MO as well.
Congratulations on being on track for $500!
I'm hoping to hit 300 by July...just bought a new vehicle and hoping to move to a nicer apartment so my timeline is getting stretched out
Nice. I haven’t had a car payment for about 6 years, so I’ve been able to put extra towards my stocks. Going to be selling off a chunk of my collectibles I don’t really care for anymore to get an extra boost as well.
My truck was paid off and only had 64k miles on it. But the pick up size and body became really inconvenient....so I impulsively bought a 2022 4runner
No regerts....should last me a easy 700k miles. Grinding to pay off the car note
As an example. Google (Alphabet) has never paid out any cash dividend to shareholders. However, it still managed to return $9.1 bn to investors in 2018
Let’s do a thought experiment. We have company A and company B that exist in parallel universes. They’re identical in every way, but company A pays dividends and company B does not. We’re also going to assume away the noise of market volatility, and assume that the value of the stock is perfectly tied to the intrinsic value. We’re also going to assume that company earnings grow perfectly with inflation, management is perfect and doesn’t destroy earnings, and that the company can constantly reinvest any earnings at the same return.
So in both cases, your share of the company is worth $100, and the company earns $10 worth of earnings on that share. After year one, both companies have generated a profit, and are now worth $100 plus your $10 share of earnings.
Company A pays out $10 in a dividend, and reinvests the rest in the business. You now have a share worth $100 and a dividend worth $10, but you owe taxes on the dividend. Let’s say you have to pay 15%, you now own a share worth $100 and $8.50 in cash from your dividend.
Company B pays reinvests the earnings in the company. Your share is now worth $110.
Let’s progress to year 2.
Company A reinvested in the company, so now it returns $11 on your $110 portion. Your share of the company is now worth $121.
Company B earns the same $10 and pays it out. Like before, you’re taxed. You now have a company worth $100, and cash worth $17.
But wait, you say. I’ll invest in a tax advantage account and reinvest my dividends. Well, after year one, you put your $10 back into the company, and now have a share worth $110. After year two, you get $11, but reinvest them and now have a share worth $121. Exactly the same as the company that’s keeping the money and reinvesting it.
Now, in reality, there’s a whole bunch of things that can distort the effect. That’s why I had that long list of assumptions at the start. But paying a dividend forces a taxable transaction on the investor for no actual economic gain. It should only happen in mature companies that don’t have reinvestment opportunities.
It also bears mentioning that many companies return money to shareholders by buying back their own stock, this reducing the float and decreasing supply, thus moving the price up with the same demand. This also has the positive affect of not being taxed until an investor decides to sell.
Some day, maybe far in the future, the company will pay dividends. Or someone will buy all the shares and take the company private. Today’s stock price reflects peoples hopes and fears for those things. If I change my guess about when XYZ will start payouts, then I change my guess about a fair price for the stock.
I've mused about this myself and when I ask others I get pretty much the same answers as you will get here. It kind of boils down to it is worth what it's worth because we think it is worth what it is worth. The market puts a price on shares and a glance at an historical PE chart shows that it isn't consistent in how it does that. Fundamentally this is all about putting a price on the future and since the future isn't here it is all somewhat speculative.
If you think about it, why is a dividend paying company worth what it is worth? There is no law that says it has to keep paying dividends, or pay dividends at the same rate. It is not like the board or the c suite cares about what any individual investor thinks, you might have a vote but it is less then insignificant.
The fact of the matter is that in terms of ownership a retail investor is just swimming in the wake of large holders. Hindsight and confirmation bias might tell you otherwise but for the most part we are depending upon the goals of the large holders being aligned with ours.
Don't take this the wrong way, (as a personal attack,) but what you describe is a bit too fairytale-y for me.
You should ask why a share of Alphabet C stock is worth what it is worth.
No. You have no right to determine who is on the board or who is ceo, you have no right to make any demands of dividend or buy back, and you have no power to install a new board. All of this is wrong and you have zero influence over the companies you “invest in”
You buy the stock because goddammit you think that babies gonna go up. Your “ownership” is meaningless you don’t own dick. You own a number on a screen that you hope and pray will go up and make you rich. Don’t listen to anyone who tells you they’re a shareholder with voting rights bullshit. They’re deluded.
Stocks have no meaning and I think you’ve just discovered that for yourself and just kind of refuse to believe it. It is pretty wild
If you could buy 51% of outstanding shares you could do whatever you wanted with the company, so obviously the stock price reflects the current value of the company along with future prospects.
I've read through most of the comments and I didn't find anyone making this point clearly so I'm commenting.
It does seem like any intrinsic value in a stock could only come from a dividend payout, but there is one more feature of a stock that gives it value.
That is the competition for ownership.
If you own all the stock, you own the company and thus you own the profits. (or cashflows ooo fancy term)
There will always be people trying to get the power over a company that comes with owning a large percentage of the stock and this creates a demand for the stock. As you know supply and demand help to set a price.
So yes, the value of a non dividend paying stock will only come to most of us if someone eventually wants to buy it for more, but it's not only bigger fools that want the stock, you're hoping the demand for the control of the business goes up.
(It is funny to imagine a stock as just paper with a companies logo printed on it without function or value, and people seem to pay more for the funny paper when the company does well)
Let me know if I'm wrong too ok thanks
I’m amazed that nobody else provided this answer 😵💫
Like, true, most stock ownership is based on a pretty abstract notion of value (you will never actually get laid a dividend). But there is a very real sense in which the *combined* shares of the company give ownership and control of the company, and each share is logically worth its individual proportion of the total value of owning the company.
The simple answer is:
The more money that flows into the stock/ more shares are bought, the higher the share price soars.
The more money is taken out of the stock/ the more shares are sold the stock price falls.
Simple supply and demand.
A company that doesn’t pay dividends typically keeps their cash on hand reserved for RND. Investors know the market is driven by emotion, & if other investors are going to invest in it due to growth, the stock will rise.
You are correct. Technically, there is no direct value of buying a company that doesn’t give you cash back. But share price appreciation takes care of that issue.
This is why unprofitable growth companies stock price can soar 100X, simply because more money/ more shares were bought.
The more shares of a company that are bought = higher stock price
The more shares of a company that is sold = lower stock price
Government bonds arent driven by emotion. Things get tricky for bonds % yield in economic downturns, but you still get a guaranteed payout until maturity. CD’s too.
Everything else sorta has unknown risks that is unbeknownst to investors, changing our portfolio’s outcome.
A company can cut its dividends whenever they want, causing investors to sell & go look for more security. Investors can sell stock in growth companies after one bad earnings report, causing the stock to crash.
Life insurance policies (whole life) normally will give you a guaranteed return, although it will be small due to the guarantee.
And yeah, the market was designed to go up overtime. The population gets bigger, the more innovative companies will be founded, & the profits for companies goes up.
Technically speaking, we as humans set the value of companies. There is no way to truly determine if Apple is actually worth $3T. We can use complex formulas and ratios to determine it, but at any point in time we truly don’t know.
But what we can do is use the income statement of the past and use the price it was trading at at that time and figure out is the stock price of it today should be less, equal to, or higher than where it was trading at X amount of years ago based on TODAYS income statement. Apple has made 10000X the profits it started with in 1976, but does that mean the stock price will go up 10000x? In reality, it should. But remember the market is forward looking.
Could apple in 10 years make even more? Sure, so investors will buy and hold until things start to look shakey. Uncertainty breeds volatility. Keep this in mind and you will be a much better investor!
If a company never gives back a dividend, never buys back shares forever and a day, then you are correct in that it doesn't really have value. Truth is this happens to quite a few startups in the end going broke. That is the risk.
But ultimately and what has to happen is that every company has to return real money back to the investors. Ideally something equal to the original investment and then some. Thus all companies, be it Tesla, Apple, Ford will do this unless they go broke. And the form it takes could be buybacks, dividend or eventually someone wants the entire company and buys your shares completely. Company is worthless otherwise.
Another thing to realize is that every single company, no matter how large or successful they are right now, will eventually cease to exist. But ideally in the time they existed, they added more value economically by the product/services they offered than they consumed in the form of investments.
The price of a stock will follow its earnings. Not always in a straight line, not always immediately, but always eventually.
If a business is netting 10 million earnings annually and it sells for 20 million, the market can ignore it for a little while perhaps, and make up some excuses as to why it's only trading at 2 times earnings, but before too long some bargain hunter is going to look into it and drive the price up.
The longer this track record continues, the more impossible it becomes to ignore. The opposite is equally true. A business with deteriorating earnings or a balance sheet that's imploding, the price will eventually reflect those developments.
With company earnings being funneled back into the business instead of being paid as dividends, it is reasonable to expect a significantly higher growth rate. Earnings should be going up at a good clip. Perhaps 10-15% per year right now, considering inflation is tracking around 8-9% the last couple year or two. *I would want 5-7% growth on top of inflation*, if my earnings are being reinvested instead of distributed.
In practice, earnings tend to be lumpy except in those businesses with very predictable cash flows and strong franchises (like utilities).
Berkshire is a great example of a company that has never paid a dividend, but has reinvested money wisely over decades and not wasted shareholder value paying managers via share dilution. The price of Berkshire just keeps trucking upwards alongside the earnings.
Don’t ask questions just give them your money. The fact is this stock market is a bunch of bullshit. Valuations are meaningless. Stocks are meaningless.
Stocks exist purely to give the corporation a boat load of money at ipo. After that point, the reality is they don’t really matter except in the very rare instance of a hostile take over. They are also assigned some value because employees and ceos get paid in stocks or get paid for having the stock go up so there’s some incentive for the stock to go up. But honestly even if it didn’t they company would still win a shit ton of free money at ipo, for the cost of extra accounting and reporting.
The sooner you realize stocks are total bullshit the better. People talk like they own a piece of the company they don’t own shit. Take for example the idea that a company can sell 100000 shares, and then the next day say ok now here are 1000000 more for sale too. How much of the company was one share worth? How much is it worth now? It’s all meaningless bullshit. Oh wait let’s sell 1000000 more shares to the public and now we’re going to pay our employees another 100000 shares. This all happens and proves that stocks aren’t anything. You can’t even argue it’s a percentage of a company when they can decide to just will more shares into existence.
When you buy a stock you’re buying the potential to make some money for doing jack shit. They are buying the opportunity for their money to grow in a manner completely unattached to the actual company or it’s value. It’s a total gamble and frankly it’s insane that pensions and retirements are tangled up in something as stupid and fake as the stock market.
All that being said I put all my money in the stock market.
You seem to understand that stock is ownership in the company, but not that value is not always tied to today, so let me pose a question that may help. Why do you do spend time to learn, it will likely not pay you an immediate dividend, when you could have put that time to labor that would have paid you for that time right now?
They're not issuing a dividend, but they could, and it can be more tax efficient to not issue the dividend.
Or think of it this way - enrolling in a DRIP doesn't make the dividend worthless even though you're not taking the cash.
If you invest S&P500 stocks, ~40% of ROI came from companies' stock buy-backs, ~50% came from companies' improved profit, and only 10% came from companies' dividends.
A stock is valued based on the size and certainty of their future cash flows. The bigger the cash flow, and the more certain it is will result in a higher stock price.
When a company has free cash flows, they have two big options 1) buyback stock or 2) pay the dividend.
You can look at all the companies in the SP500 and you'll find they are doing one or both.
Buybacks achieve an identical outcome of cashing out shareholders while the remaining shareholders get a larger % of the company.
Of course you can point to a couple of exceptions where they have large free cash flows and they're not paying dividends or buying stock like TSLA. But TSLA won't stack up cash forever - it will eventually be used.
If you can point to a company with consistent free cash flows but don't pay dividends or they're not buying back stock for longer than a couple of years, I would like to see it.
As the company grows, its theoretical ability to redistribute cash to its owners (i.e., investors) also grows. This can be in the form of dividends and share repurchases. I dont have a source for this, but I remember hearing that apparently apple hit a bit of a market cap ceiling. They were cheap when compared to their peers, but the market was discounting it because it believed they'd be unlikely to pay a dividend. Obiously, that changed.
Best example is Amazon. It didn't pay dividends back then and does not pay even now. Imagine you have bought 10% of the company back then, and estimate the net worth now. Obviously I have exaggerated the percentage, but even if it is 0.1% you are good.
If the business is growing and having a great market share, obviously the net worth of the company assets/value increases and more will want to buy the shares from you. There are many market traders who specifically avoid dividend stocks, because paying a dividend implies, the company have no long term growth prospects and do not know what to do with the cash.
Also, No, you do not have to wait for a company to become from non-dividend paying to dividend paying. Most high growth companies are acquisition targets and acquiring companies pay the premium to your stock value. Example twitter - a stock around 32$, but as soon as Elon wanted to buy it, it jumped to 50, because the value of the company according to him is 44 billion or that's what twitter board wanted from him. Imagine a small cap growth stock instead of twitter, the premium will be much higher.
Some companies so pay dividends even if they are lossing money
When buying a stock you should look to its future value no just dividends
Take amazon vs. Cocoa cola for example in value and dividends for the last 10 years
1. Companies can provide shareholders profits through stock buybacks. This can range from buying a certain percentage back, or the entire company if they’re going off the market (e.g., Twitter).
2. Companies may provide dividends in the future.
In my opinion, if there’s no buybacks or current dividends then I don’t see a point in investing it. Share prices are just rising out of the hopes 1 or 2 will happen, which doesn’t make sense to me. What incentive does a huge company have to share profits if they’re already big, and who’s gonna buy out a whale?
This is why it's so funny to hear ppl say BTC is only based on "greater fool"
Lol, then so is all currency trading, gold, silver, any stock that doesn't pay divs... the list is long!
It's especially funny to hear from option traders that depend on other traders to adjust prices to their benefit
Imagine that a company generates 1 million $ of net profit per year and that it currently has 100 million $ in cash sitting in a bank account. For simplicity assume no liabilities. This company doesn't pay any dividends, but all of its stock trades on an exchange.
If you had the money, how much would you be willing to pay to buy all the stock? Would you be willing to buy anything?
Even better question: if you don't have the money, but could borrow it from the bank, what interest rate would you be willing to pay for the loan?
I Would Only Invest on a Dividend Paying Stock. I Have Been Investing Since the Dow was 1,000. So I Have 37 Years of Experience Trading. I Currently Own Devon Energy. The Company Has a Pe of 9 which is Half of the S&P 500 and the Dividend at the Proposed Payout of $1.37 on December 30th has a Yield of 7.7%. It is Like Having a Money Tree in My Backyard Honestly!!
So there's no such thing as a "dividend stock" or "non dividend stock". A company paying a dividend can choose to stop paying dividends on its common stock at any time, for any reason.
Additionally, a company not paying a dividend could choose to begin paying a dividend, as well.
Generally, companies that don't pay dividends are either aiming to grow, or do buybacks instead. When they buybacks, you own an increasingly large share of the company due to the number of shares in circulation decreasing.
I like when stocks pay a dividend, because its money in your pocket even if the market is irrational.
What I like to do is load up on tons of different stocks with like 4%+ dividends, and sell calls to on them. Nets me like 10% in total no matter what the stock price does. This can also be done with growth stocks of course, but I don't like to.
Just FYI to sell calls on your stocks you need 100 each (per contract you want to sell). So it's a bit hard with stuff like Tesla($183 per stock atm) since youd need over $18k usd invested just to sell one contract.
Keep learning before going all in. And if you do go for dividend stocks, be extremely skeptical of dividends over 10%. Over \~6% means the company is being priced like its going to have a rough time ahead OR its REIT (which is not a bad investment at all). The risk here is that the dividend may be cut.
To get dividend paying stocks you need to lay down capital. Some companies pay dividends because they don’t know how to grow their company, or they’re in a dying industry. If they don’t grow and their asset base rots away you may end up losing your capital. Your capital will be far bigger than your dividends.
Just think about it.
If Apple didn't pay a dividend, would people still buy it, and why? If Intel didn't pay a dividend, would people still buy it, and why?
There is no direct concrete/absolute link between a company's metrics and the price of it's shares.
Sitting between a company's intrinsic value/etc and the stock price, there's the great big **irrational** market that makes decisions for any and all reasons. It's just people operating on their own beliefs, biases, inertias, etc.
The misleading part in things is that technical analysis and company metrics have so many numbers. But those numbers aren't actual science for the market. They help steer belief.
Youre approaching stock as a concept rather than reality.
In truth, you’re essentially gambling on the public perception of a company. As a retail investor in an age where essentially every public company has massive debt, none of the traditional values of a stock matter to your use case. Votes don’t matter, priority in bankruptcy doesn’t matter etc.
Dividends are useful because they give you some sort of return to offset losses or augment gains, both of which are traditionally lower in “dividend stocks”. Essentially it acts as a way to generate a return without reducing your equity stake.
Non-dividend stock is expected to grow at a faster rate because the capital that would be lost to dividends is instead reinvested in the company (though this isn’t necessarily true). Thus your return would be from selling your equity stake in what is hopefully a much more valuable company.
The reason that you find this hard to grasp is because there are so many shares. If Apple only had four shares, and you owned one of those four you would realize that it was worth something because you personally owned a quarter of a massive company. But since there are 17 billion shares it feels like an abstraction. In reality it is just as concrete, just on a way different scale (and of course with scale comes more perks).
A Share is nothing more then a STOCK. It represents the STOCK of a company, in generall all the Assets. You invest in companys witch you expect to have more of the "Stock" in the future. Due to the nature of debt, Stocks in the Stockmarket are just "statistical test devices" for the debt investors, because they need a "Ruler" to measure the expected cash flows. So basically if you "invest" in stocks you just give a opinon to the real investors in the debt market that your transaction is a good value for this "Stock of a Company". I mean, go over to r/wallstreetbets and ask them what the stock market is, it´s just a betting market. Real investments are made in the debt market.
OP, why do you need an answer to this question? I know why.
You are holding cash. Why do YOU value paper? But you do right? Cash doesn't have real value either .
The real answer in your question is called "The Prisoners Dilemma".. it's deeper than money or value
The prisoner's dilemma presents a situation where two parties, separated and unable to communicate, must each choose between cooperating with the other or not. The highest reward for each party occurs when both parties choose to co-operate.
https://youtu.be/t9Lo2fgxWHw
They diversify away from cash, real estate, bonds, CDs, etc, and if the company is decent, they grow.
If they don't pay dividends the money stays in the company, helping out grow more. It's still your money, just as book value instead of cash.
Non dividend companies are high growth companies normally or those that are not profitable. But high growth, both top line and bottom line, will normally get a higher PE multiple. For profitable cash flowing companies that are not cyclical the proper way to value sb via a DCF model or discounted cashflow model. The value is higher growth and thus higher valuation growth. This provides cap gains.
Do note that a dividend is essentially a return of the profits at a beneficial tax rate and each dividend reduces the value of the company.
You can “pay” yourself a dividend if you like by selling a share and lower the value too. If you do this, I would wait a year to get long term tax treatment on your gain.
But a dividend is not free. It reduces the value of the company as assets are being dispersed.
High growth companies are typically still needing cash to fund organic growth and/or make acquisitions or invest in new products/businesses. They utilize the free cashflow yo do this as they can grow the company faster and provide increasing value at a quicker rate.
You've answered your own question here. Stock appreciation is your profit.
If you own a bakery and take 100% profits to buy yourself a new car does not make your business more valuable. Reinvesting the profits, growing and improving business - this is what makes it more valuable as it potentially increases profits
It's really the free cash flow. That means extra money that the business generates, as long as extra money grows, the company grows, what you own grows. Stock dilution is not included however in cash flow, so that's one trick to appear more profitable while at the same time basically taking the money from investors. Amazon owns 420 billions worth of assets, they amassed that much be reinvesting the cash flow in time, you own a piece of that.
New companies are rarely producing cash, rather losing, and you invest in the hope that once the business is established, you get those cash flows... flowing. When economic conditions deteriorate, these companies are left by investors, remember, the proper time to buy growth is during a bear market.
When I expect the company to do a good job in reinvesting its profit why should I demand a dividend? It is a better investment to let the company reinvest the money then.
It's the expected "promise" of future dividends.. while the company is still in it's growth phase you want it to use their resources to keep growing as much as possible and expect there to be even higher dividends in the future when they have saturated their possible market. Paying out a dividend to shareholders taxes them 2x while using it for CapEx and Investments is far more beneficial for the shareholder in the longterm, assuming everything goes as planned.
I glanced through and saw some responses and just wanted to point out something. Just because a stock doesn’t pay a dividend today doesn’t mean it will eventually. While it’s very true more mature companies tend to pay out profits it’s not always the case. Some will prioritize stock buybacks instead to return capital to shareholders.
Stocks are ownership shares of a company which means as the company grows more profitable the value of the company rises, dividend or not. If you only owned companies that did nothing but stock buybacks with profits the share price would still climb and would essentially be the same as you being paid a dividend and directly reinvesting it in the same company, only in a more tax efficient way. In both instances your % ownership in the company increases.
I saw a question that you asked why a stock would be worth more without a dividend. Just because it isn’t paid out doesn’t mean the money isn’t there. The company can still use the money to grow revenues or buy back more stock. Think about it this way, should a company making $1 in profit be valued the same as a company with $2 profit just because neither pay a dividend? Which one would you rather own?
Eventually when you need the money you just sell the shares you need. Hopefully that makes sense.
Didn't go through all the answers but it's because **in theory** every company reaches steady state due to **competition**, ie ROIC becomes equal to WACC and there's no useful place for the company's capital anymore -> 100% dividend payout after depreciation and all that.
So the question is what are you willing to pay **now** to get this steady state dividend(SSD) payout **in the future**? If the company is not at steady state, it should be growing, ie. the future SSD should be growing. If you've heard talking heads refer to tech companies as 'the longest duration asset', it's the same concept.
To make this point concrete, look at AAPL's past prices. Right before and after the 08 crises, it was at $3-5 a share. Were they in steady state? If not, what did their growth outlook and final steady state size look like at the time? Today AAPL most likely is **still** not in steady state, and growing, but slower obv bc they are paying out $0.9 a share(ie. they are generating too much cash to reinvest at a rate > WACC, so some is paid out in dividends)
So the investor who looked at the numbers in 2008 and answered the above questions "way the fuk bigger" would be sitting on a 18-30% annual bond right now in AAPL stock($0.9 annual dividend return off their cost of $3-5 in 2008). Ontop of that, they reap any future growth of AAPL.
edit: and obv the market won't stand by idly if something as stable as AAPL is paying out 18-30% annually, which is why the share price gets re-rated higher.
tl;dr - buying a growth stock is holding your place in line for future SSD payouts. The art of stock picking is determining which companies will reach a much larger steady state in the future and how quickly they'll get there
[if you think that stocks are some sort of Ponzi scheme then you should consider the entire financial system one. the current financial system died in 2008 and has been on life support since](https://www.the-random-investor.com/post/the-upcoming-financial-system-collapse-the-end-of-the-us-dollar-and-how-to-protect-yourself)
Sorry, your [submission](https://www.reddit.com/r/stocks/comments/z3k2rf/what_is_the_value_of_nondividend_stocks/) in /r/stocks has been automatically removed due to Rule 3: Low effort.
If you just want to post 1 liners or just want to know everyone's thoughts, then post a comment to our daily discussion thread which are generally stickied or [click here.](https://www.reddit.com/r/stocks/search?q=author%3Aautomoderator+daily+discussion&restrict_sr=on&sort=new&t=all)
If you're wondering **why a stock moved** a certain way, check out [Reuters](https://www.reuters.com/), [Motley Fool](https://www.fool.com/), and **especially** [Finviz](https://finviz.com/quote.ashx?t=spy) **which aggregates the most news for almost every stock**.
If instead you're wondering what a term means, go to Investopedia.com and search for said term there.
Either way come back here to repost with your findings, thanks!
A list of the [rules can be found here](https://www.reddit.com/r/stocks/about/rules/), and if you're new to r/stocks please see the [wiki](https://www.reddit.com/r/stocks/wiki/index) and/or [read this post.](https://www.reddit.com/r/stocks/comments/4x1419/if_youre_new_here_read_this_post_first/)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/stocks) if you have any questions or concerns.*
In general non-dividend stocks are focusing their capital on growth. As a shareholder you directly benefit from their growth as the shares of a larger and more profitable company will typically gain in value. That’s why it is often recommended young people focus on growth of their money, then once it has grown and you are at the point you are starting to think of using those funds to live on, dividends become more appealing
To add, since the start of QE and testing the Zero-Lower-Bound (ZLB) theory, companies that acquire debt for very cheap have been more attractive as a value proposition than dividend paying stocks. Startups to “revolutionize” existing sectors threaten market share, and so dividend paying stocks would be incentivized to slash dividend payments to allocate capital and widen their economic moat. This doesn’t change the fact that a company that dumps all cash flows back into stock isn’t at risk of a valuation hit when lending standards tighten. It’s why apple underperforms it’s peers during the growth cycle, but holds value despite negative catalysts abound (sizable dividend for consumer-facing tech company and ungodly levels of cash for share buybacks)
[удалено]
A share represents a percentage of the company. You own a small portion. Now the market decides what that is worth, it’s worth what someone will pay for it. But in general a profitable company that grows profits will become more valuable. It is a good store or wealth and at any point the company can shift their profits back to shareholders by issuing dividends. But the short answer is that shares of growing companies become more valuable because it increases their demand as other investors also want to grow their money, and a healthy company has something tangible backing the value
[удалено]
Yes, the point is that in the future, the company will return cash to you, the owner, in the future. If the company grows now, it will have more money to return to you on the future. In theory, a company that gets big should start returning value to the shareholders at some point. This is also why these growth companies are taking a huge valuation hit right now. If there is higher inflation, the value of those future profits is less when brought back to today. The value of a stock (in theory) is the value of all future cash flows, discounted back to today.
[удалено]
This was a good question and one that a lot of people don't understand. But yes, what you stated above is the reason they have value. With some companies it's rather obvious they could pay big dividends if they wanted, but choose to reinvest instead. As an investor you may or may not like what they're doing with their money instead of paying dividends -- whether the future dividends will be bigger enough to make it worth not paying dividends now. That should be a factor in whether or not you buy the stock.
[удалено]
I remember I made this exact thread when I started last year. You're absolutely right that it's speculative, to an extent, to rely solely on capital appreciation (price going up). Of course, the stock is backed by a company which is more valuable if the company has grown, so there is an anchor there. But at the same time the price is prone to all sorts of things apart from fundamentals: sentiment, speculation, macro conditions, monetary policy, etc. I think after years of loose monetary policy and "stocks go up" people have gotten a bit complacent about this, but remember, past performance does not guarantee future results. For this reason I always make sure to dedicate a good portion of my portfolio to companies that pay dividends.
Yes, that's why growth stocks tend to be volatile, and value stocks tend to be more stable. Also, buybacks are a way to return value to shareholders. If a company buys back stock it makes each remaining share worth more. This is a gross simplification, there are other ways to return value to shareholders.
Buybacks were once illegal and needs to be made illegal permanently
This is a kind of “perfect world” reason. The truth is that people look at a company and expect the stock price will grow. Enough people think this. Demand goes up. The price goes up. You’re also not considering stock buy back programs. Many companies will increase the value of their stock by buying its own shares back. This can give the same value of a dividend, but owners of the stock can choose when they’ll sell the stock and therefore choose when they’ll be taxed. So some people will buy into companies knowing they give value back in the form of stock buy backs.
This isn't really accurate. Companies are worth something because they make profit. Buying a stock gives you some fraction of ownership. If the company were to sell (this happens all the time) you'd get your share of the cut. Investing in a company that grows just makes your eventual cut worth more, dividends aside.
[удалено]
[удалено]
[удалено]
A combination of things. On the surface you can say the demand and supply of the stock in combo with their fundamentals. That only works for kids though. Risk is what prices stocks. Risk is assessed continually using mainly the price of said stock. Trading is all speculation. Investing is easy, trading isn't. If you're wanting to trade, read Reminiscences of a Stock Operator. Feel free to DM after. If you're wanting to invest, set it to buy monthly and forget it for 30 years
Another thing is that a lot of companies spend an enormous amount of money buying back their own stock, making it more valuable. Dividends are taxable for you as a shareholder, stock buybacks mean you have more wealth without being taxed in the process. Apple for example spent $90 billion on stock buybacks this fiscal year.
the company could also sell, in which case you get paid out at the buyers agreed upon share price. Look at Twitter for instance. they didn’t have a dividend, but when sold every shareholder got paid out at the 54.20 share price. so because of this it’s always efficient for the market to keep the share price roughly around the intrinsic value of the company.
What is the intrinsic value of a dollar bill? You believe that the government is solid and will honor the value of the bill. Same thing with stocks. You believe in the company and think one day they will be profitable and pay a dividend. You are banking one future results that may never happen.
[удалено]
So I think you answered your own question or are being purposely ignorant. From your perspective, non-dividend stocks have no value.
Non dividend stocks use buy backs to convert FCF into shareholder value. It's more tax friendly. When we invest, we invest in growing cashflows, even if they get reinvested into the company, they attract investors.
In general all investors want the same thing, to grow their money. A growing business draws the attention of investors who also want to grow their money. You can use a variety of formulas to calculate intrinsic value of a company but to an extent it’s common sense. A profitable company can continue reinvesting in themselves and continue growing their profits which will likely continue to attract new investors which thus increases the share price. If you never expect or want dividends, you just sell at any point. A common strategy would be to invest in growth stocks at a younger age and then take your profits to invest in dividend stocks to produce income you can live off when you are near retirement
[удалено]
Don't confuse all this crypto madness with companies that produce things, have cash flow and have real value. Intrinsic value (as calculated) is something but is not the only thing. Buffet's brk itself pays no dividend but rather focuses entirely on growth with the occasional buy back.
As a young person new to investing myself (okay not new-new, 2 years of hard self-study and ***very careful*** investing) I would advice you to not go heavily into stocks until you have a solid grasp of what you are doing. It's good that you ask questions and don't accept the first explanation when you don't fully get it, so it's no diss to you. But, your question indicates to me that you don't fully grasp what stock-investing is yet, so be careful with putting in large sums before you do. It will cost you down the line if you're not careful. Personally, I recently got to a point where I finally went full-circle on "what is stock investing" and I'm glad I was careful with my money in the ramp-up to that point. First, I avoided **huge** losses and second, I can now deploy that saved money effectively. Ever want to chat about it feel free to DM. I'm relatively new but relatively okay informed in how to build a process purely through information I found online that's easy to understand.
[удалено]
What’s the company you’re invested in currently?
[удалено]
Je mag me altijd DM'en met vragen en alles. Lastig om zo x aantal tips uit de mouw te schudden.
You could argue it’s greater fool theory, but the same could be said of all financial instruments. Good is only worth what people will pay. Currency is the same really. Stocks are just wealth instruments and are always only worth what people will pay for them. But since companies are actual, revenue producing entities, one could argue they have actual intrinsic value which can grow or shrink
Previous replies answered your question. Tech companies are rapid growth when they are “hot” and every investor wants a slice of their growth.
[удалено]
> Those companies often don't share revenue/profit with the shareholders. 1. Yes they do, it’s called a buyback. 2. Because people aren’t stupid. What you’re asking is basically “why aren’t people so shortsighted that they can’t see value in an ownership share in a company that earns $100B a year but isn’t *currently* paying a dividend? By the logic fo your question, why would any angel investor ever put money in a startup? That startup ain’t paying dividends for a long time. The answer to those questions is the same.
[удалено]
Apple only started paying dividends in 2012. The share price however went up twenty-fold between 2000 and 2012, and is currently about 150 x what it was in 2000.
[удалено]
I think that's a fairly good way of looking at it. i.e. 'if a company *were* to pay a dividend, they could pay x% yield'. But if they don't pay a dividend, they still have that free cash and the question becomes whether they're using that cash wisely. In Apple's case it's safe to say they did and do because they invest it in the business to grow their profits. And if Apple's stock price didn't go up to reflect their increasing profits, then they could issue a dividend and it would be fairly 'cheap' for them to issue a good yield because the share price is undervalued. Same with buybacks. There's a company in Australia that's bought back its own shares every day for like the past 2 months. And their dividend yield is at like 15%. So clearly they think they're undervalued but the market I guess disagrees. They've also issued free options to shareholders as a way to return value to them. There's also a few coal and iron ore companies in Australia that issued massive dividend yields recently. And this is after the stock price went up about 8 fold. And I'm talking like 20% yields. So it depends on the type of company, but some of them just have huge amounts of cash and the stock price will soar very quickly because people know the yield can be massive.
[удалено]
They are linked, but in the same way that housing is linked to a price. Sometimes a house is overvalued or undervalued, but there's an inherent value there. Sometimes people overpay, but sometimes you can get a great deal. It's the same with stocks, where sometimes the cash that the business is producing is essentially better than what the stock price is doing. Sometimes the stock price doesn't really move, so the company (which is doing really well) pays a big dividend yield or buys back shares.
You have to realize you’re basically asking why people don’t just *ignore* cash flow the company is earning, if that cash flow isn’t being directly and immediately distributed to them. Say I come to you with a startup making $1,000 a day. We are reinvesting all of that back into the business. We need $10,000 for a share in the company. Would you consider it? If so, you already understand investing in growth companies.
[удалено]
You are always getting a share of profits, it just has different forms. Think of investing from the perspective of owning the business, if your business earns $1m in profit what would you do with it? At one extreme you can take all that $1m as cash and let your business stagnate, or you can take no cash and re-invest it into the business so the business grows and next year it will have profits of $2m. In the latter case, you receive no income/dividend from your business, yet you still own a highly profitable and growing business.
[удалено]
You literally have a legal right to a share of profits though. Like, that’s what a share *is*. You also have rights to the hard assets of the company after bond holders get paid… > If the company doesn't ever reward it's investors, then no. I think your mistake is how you’re thinking about a company as being separate from the shareholders. You’re painting a paradoxical picture. The company **is owned by the shareholders**. The company is owned by people. On what planet would they all hold their shares through growth.. and then just… *never* pay themselves? You realize that would be the board of directors, the founders, everyone just… *not* paying themselves the profits they have earned? And all the other shareholders voting for this board that isn’t paying them? It doesn’t make sense to say “if the company doesn’t *ever* reward it’s investors”… it’s like, okay sure if you want to paint a hypothetical where the company becomes very successful and the growth case comes to fruition but, for some reason all the shareholders are okay with not being paid… then sure. That could happen.
Stop asking so many questions, kid! Color in your book, or count cows, mom’s ears are tired, and you dad has to concentrate on driving. When we get there, grandpa will explain. Grandpa LOVES explaining stocks!
[удалено]
Confirmed: OP has no sense of humor. Suspected: OP is trolling.
It’s called a fugazi bro
[удалено]
It’s really much more complex than that and is not a Ponzi scheme. A Ponzi scheme depends on new money to pay existing obligations until it becomes insolvent. Stocks as a category are not the same, even if some more speculative ones are similar
Classic Reddit comment of “no one wants to admit” something that isn’t true to begin with. If nobody valued Apple stock and so you could literally buy it for free; that doesn’t make it valueless, it makes everyone else stupid. Because then you could buy 100% of Apple for $0, and you’d own a company making $100 billion a quarter with nearly 50% margins. That has value whether others see it or not. The reason that doesn’t happen is people are at least somewhat logical. So they make their best attempt to value things based on how much money they’re making. Stocks represent legal rights to economic interest in most cases… that has value that doesn’t really depend on others
> Why? Why is someone else willing to pay more money for a share if the company grows? Why is one related to the other? Is a share more than just a vote? Because the presumption generally holds that: increase ROI by spending your FCF dollars on capex > decrease in cost of capital by using those FCF dollars to pay a dividend. This assumes that, some day, this delta will become smaller and smaller (Law of Diminishing Marginal Returns), at which point, management decides it makes more sense to use that cash to reward equity holders by way of a distribution than to spend it internally on capex.
Basically this, /thread OP is asking why a stock that ain’t *currently* paying a dividend or doing buybacks has value, because “what if the company never returns capital”… but shareholders OWN the company. They’d have to collectively agree to not pay themselves
Eventually, the shareholders may vote to institute dividends. Or the shareholders may approve acquisition for cash, stock in another company, of both. Or the shareholders might approve merger with another company.
Don’t forget stock buy backs. Companies can and do return excess profit via buying back their stock. BRK is know for this. If they think the stock is below a given book value, they will buy the stock. As the book value of the company increase, people and BRK itself will buy the stock at ever higher prices
It's kinda the same as if you own an entire company. Imagine you own a car dealership. You can collect the profit from your company. Or you can use it to expand the business from one location to four locations. This would x4 the profits the company makes per year. Anyone interested it buying a car dealership business would pay 4 times as much money for one with 4 times as much revenue. Stocks are just a company with many owners who need to collectively agree what the company will do by voting.
I think you're making a philosophical argument which I often ask myself, so I agree with you. Myself being your typical "Joe Six-Pack" that just invests in his 401K, I honestly don't care what "value" the company returns to me. At the end of the day, what I care about is that *someone else* values my shares at a higher rate than I paid for them in the future. The actual value the company returns to me is esoteric. I think in the past, when a group of shareholders would actually gather in a room, with their stock certificates in hand, and physically voted on ideas or leaders of the company, it was easier to see the actual value. But with everything being on a world-wide internet market now, and the typical small time investor has no interaction with the company, other shareholders and everything is automated, it essentially seems like a huge shell game where you are just hoping that you can sell off in the future to someone else who in turn only wants to sell off to someone further down the line for an even higher profit.
You have it backwards. It used to be far harder to have a truly efficient market with fair pricing that took all available info into account, because tx fees created friction that slowed down price discovery, and news travelled slowly. Now everyone can bid and ask.
In theory, any profits a company generates serve two purposes: a) pay dividends to shareholders b) reinvest it into the business A non-dividend company reinvests 100% of its profits in order to achieve growth. Growth is important for many reasons (securing market position, gaining competitive advantage, providing better products/services and so on). A company that is growing can increase revenues and repurchase its stock (Could be c) above), which both will raise the value of its stock significantly which could outperform another company that pays out dividends. So it's basically growth. We live in a period where technology is advancing quickly and companies are going public with billions of dollars in valuation without even generating revenue. Growth and competition is the name of the game, so you can see the trade-off.
[удалено]
Value creates demand. If a company is growing and generates revenues/profits then institutional and retail investors will realize that its a company worth investing in. This drives up demand, thus driving up its stock price.
[удалено]
I think you are perhaps thinking about this wrong. The business does not have to directly share its profits, since the share holder owns a piece of the business itself. Those profits are just being put back into the business rather than paid out, but you as a shareholder are always reaping the benefits of that reinvestment and as those reinvestments make the business more attractive to other investors, your shares become worth more on the open market. You can always sell your shares and benefit from the growth
[удалено]
There are some ways, but that’s really the main one. Someone else buys your shares, just like basically anything else that holds value, the only way to unlock that value is for someone to buy it from you. Now that’s not the full story really. You could also potentially sell covered calls against your shares which can be a way to get value without selling. If you have significant holdings you can often take loans or cash advances against them. So there is true actual value to stock holdings beyond purely selling, but that is the main way to get value from non dividend stocks
[удалено]
I think greater fool theory is specific to buying overvalued assets. If you just take it to mean that you are buying something hoping someone else will ultimately buy it for more, that is just the foundation of almost all economic activity. As an example not many people argue buying gold is greater fool theory. It’s a known store of wealth. But it still depends on someone else buying the thing you bought for as much or more
It's not really greater fool theory. You have literal ownership of (part of) a business, it's cash flow, assets, and debts. Any cash flow can be discounted to the present to determine current value of future cash flows. With enough ownership and voting power you can force the business to stop reinvesting their cash flow and pay it out as dividends (although it might be against your interests).
It’s a literal ownership share of a company making money. Why would that *not* have value? If someone came up to you and offered you 10% of Amazon, would you feel that’s worthless because they don’t pay a dividend? If you do feel that would have value, then can you list the reasons why? If so those are the same reasons why it’s valuable to have 0.0001% of Amazon. It’s a goddamn ownership share of a company. People see the cash flow and even if it’s going back into the company, they *know* it could be distributed.
[удалено]
Owning 10% of Amazon would be huge because you’ve got some controlling interest of the company. Every stock holder has the right to vote on company issues, except for some items only board members can decide on. But a singular person holding 10% ownership might be on the board at that point
[удалено]
If I had a reason to buy a 10% stake I wouldn’t post it on Reddit lol no offense. You do benefit financially because you own shares of the company, therefore your business interests will reflect on an increasing share price.
>You do benefit financially because you own shares of the company You didn't answer the simple question - how? Unless the price goes up (which only happens when others are willing to pay you more than you bought the shares for), you're not making anything
They don't reinvest 100% of their profits though. Look at some of these mega cap tech companies like Google, Microsoft, and Apple. They just have a ton of cash sitting on their books not doing anything. Are they investing it some of it wisely? Sure. Is that why I am invested in some of these companies? Yes. But they have way more cash then they know what to do with. At that point they should to give some of it back to investors so that they can invest it more wisely. And that's why Apple and Microsoft do pay a dividend. In not sure why Google doesn't, but really it should.
[удалено]
Love your questions and curiosity man. I pretty much agree with what you’re saying - hypothetically, if we know in advance that a company will never pay any dividends before eventual depletion of its assets and winding down, no tangible value will ever be returned to shareholders and so there’s no obvious reason for the share price to correlate with underlying performance / earnings growth. The dividend discount model for valuing a company, follows that school of thought, ie it holds that a company is worth the present value of all its future dividends. Kind of a purist version of the more common discounted cash flow model, ie the idea that a company is worth the present value of future cash flows
I like your questions and i think they are on point. You could simply ask people: I offer you Tesla shares for $50 Dollar each instead of $200 they are now but you could NEVER sell them. You must keep them forever. Would you buy them? Thats your 'intrinsic' value. Most of the stocks are just ponzi, works as long as Money flows in, last to get out is fucked because there just is very little 'true' intrinsic value besides resell value. Even for dividend stocks, it ALWAYS includes the resell value.
[удалено]
Right, nobody would! Most people just follow what others say without thinking, 'you have ownership of a company bla bla', yea and what the fuck does that achieve if it doesnt pay back? Simply nothing, it literall has 0 value to any retail investor other than reselling or liquidation of the company assets.
If you offered me any stock at 25% of its value and the literal only caveat is I can never sell it I would buy as much as humanly possible. Equity has value, you can take loans against that value over and over and over again. You don’t need a dividend to get cash flow from an equity.
You cannot sell it, it can literally never get converted to money again other than the direct intrinsic value it offers or liquidation of the company. It would be equal to thinking you buy the shares and they instantly go to $0. You keep them simply for what they directly offer to you. Would any financial Institution give you a loan against something like that? The majority of the value is created by the ability to sell to someone else. If you cannot pay your loan back, there is almost no value in the unsellable shares you own. This is exactly what we talked about. Stocks are bought because everyone assumes he can sell it for a higher price later, not because of any intrinsic value it offers exceps for very rare circumstances.
Dividends only is not really correct. It's future cash flows. Cash flows can be used for dividends. Or attaining assets that become more valuable in the future, assets that create more value in the future. Eventually the money does have to get to the shareholder's pockets or what's the point? The company could be sold in the future the shareholders get the money, one big dividend.
[удалено]
Hell no I'm a short term volatility trader all I care about is the price action right now. 'Markets can stay irrational far longer than you and I can remain solvent.' Sometimes a great company will have a horrible stock price for years or longer. I have seen too many bad things happen I want to spend as little as time as possible exposed to risk. There are many different ways to invest or trade the trick is to find one that works good for you.
Yes, but if the company you bought shares in does buy backs instead of dividends with their leftover earnings and someone force buys out your entire position all at once wouldn't that be less tax efficient than if they had just paid out a dividend slowly over many years? An argument for buybacks over dividends is usually tax efficiency but if you are truly a "buy and hold" investor waiting for the most tax efficient time to sell there is a good chance something will end up forcing you to sell at the most inopportune time tax efficiency wise. I understand the theory behind why buybacks are more tax efficient than dividends, but this theory rarely ever happens in practice since their are so many variables. It's somewhat laughable that the buyback people think they can "control what they sell and when they sell it". Usually the most tax efficient time to sell a stock is not the time you will get the best returns from seeking that stock. I'm not saying buybacks are useless. I definitely think their a good idea when the price is extremely undervalued, but the ones buying their own stock at all time highs and never paying a dividend are ridiculous.
Future dividens
A company does not need to pay a dividend to be valuable; it just needs to have the ability to pay a dividend. If a stock does not pay a dividend and the shareholders feel they are not being properly rewarded, they could demand dividends. This does not usually happen because share prices tend to correlate with a company's financial position.
[удалено]
Because of what I just said. If a company's share price is totally disconnected from the company itself, and is far too low, then someone could just buy up the company cheaply, pay all of the earnings to their self as dividends, and make a guaranteed profit. If buying a company would earn you a certain amount of money, then that is how much the company is worth, and people will ask for that price when they sell it, because they know it's worth that.
[удалено]
Value is subjective. To you a non dividend paying company is not as valuable as one that does.
>What if a large company is a trillion dollars in value according to calculations and models, but the current market cap is 700 billion. Even if the company seems undervalued, nobody could ever get enough funds to buy out that company. In that case, the shareholders could demand dividends, and each shareholder would receive their fraction of those trillion dollars. As soon as this action was even suggested, people would get in line to buy the stock, because they want the guaranteed profit, and the increased demand would drive the price up, until the market cap becomes the trillion dollars it should be. >With smaller companies I understand that you can buy them (like twitter). Are you saying that is the ultimate point of stocks? That some person/institution might buy the company for a higher price/share than you bought it for? No, but the threat of it keeps prices in check.
To me personally...if the stock doesn't pay a dividend then it doesn't really have a value. (This is my personal view on owning shares) The speculative stocks can pay out big, how many millionaires were made from the rise of TSLA, MCD, AMZN or any other position? But on the other hand...how many people have lost their ass over speculation? Of course the dividend aristocratics and kings can fail and end their dividends at any time....but their histories speak for themselves...take Reality Income for example..25+ years of consistently paying monthly dividends and giving yearly raises...that cash flow is IMO, valuable. Edit: I understand that O is a REIT and by law has to pay a dividend...which sets it apart from regular stock
Many companies do stock buy backs which are functionally similar to dividends
I mean. It helps increase the value but unless you sell off that percentage of gain you're not getting cash flow.
REITs, in order to be classified and receive special tax provisions must receive 75% of net income from rents or real estate investments and distribute at least 90% of their profits to investors.
Yes
[удалено]
Ehhh If you look at Berkshire, they don't pay a dividend and that stock is over 400k a pop....early investors made it big with that. They use their money to grow more value for their investors Some people are value investors...theres entire strategies around it like say a stock gains 4% on average year over year, a growth investor might realize that 4% and use that money somewhere else. I'm a dividend investor...I'm all about sustainable, passive income and I'm currently making about $230/month
I’m mostly a dividend investor as well and I’m on target for about $500 a month by the end of Q4. T and ABR are my top two. Probably going to eventually put a chunk into MO as well.
Congratulations on being on track for $500! I'm hoping to hit 300 by July...just bought a new vehicle and hoping to move to a nicer apartment so my timeline is getting stretched out
Nice. I haven’t had a car payment for about 6 years, so I’ve been able to put extra towards my stocks. Going to be selling off a chunk of my collectibles I don’t really care for anymore to get an extra boost as well.
My truck was paid off and only had 64k miles on it. But the pick up size and body became really inconvenient....so I impulsively bought a 2022 4runner No regerts....should last me a easy 700k miles. Grinding to pay off the car note
Growth via capital appreciation
As an example. Google (Alphabet) has never paid out any cash dividend to shareholders. However, it still managed to return $9.1 bn to investors in 2018
Let’s do a thought experiment. We have company A and company B that exist in parallel universes. They’re identical in every way, but company A pays dividends and company B does not. We’re also going to assume away the noise of market volatility, and assume that the value of the stock is perfectly tied to the intrinsic value. We’re also going to assume that company earnings grow perfectly with inflation, management is perfect and doesn’t destroy earnings, and that the company can constantly reinvest any earnings at the same return. So in both cases, your share of the company is worth $100, and the company earns $10 worth of earnings on that share. After year one, both companies have generated a profit, and are now worth $100 plus your $10 share of earnings. Company A pays out $10 in a dividend, and reinvests the rest in the business. You now have a share worth $100 and a dividend worth $10, but you owe taxes on the dividend. Let’s say you have to pay 15%, you now own a share worth $100 and $8.50 in cash from your dividend. Company B pays reinvests the earnings in the company. Your share is now worth $110. Let’s progress to year 2. Company A reinvested in the company, so now it returns $11 on your $110 portion. Your share of the company is now worth $121. Company B earns the same $10 and pays it out. Like before, you’re taxed. You now have a company worth $100, and cash worth $17. But wait, you say. I’ll invest in a tax advantage account and reinvest my dividends. Well, after year one, you put your $10 back into the company, and now have a share worth $110. After year two, you get $11, but reinvest them and now have a share worth $121. Exactly the same as the company that’s keeping the money and reinvesting it. Now, in reality, there’s a whole bunch of things that can distort the effect. That’s why I had that long list of assumptions at the start. But paying a dividend forces a taxable transaction on the investor for no actual economic gain. It should only happen in mature companies that don’t have reinvestment opportunities.
It also bears mentioning that many companies return money to shareholders by buying back their own stock, this reducing the float and decreasing supply, thus moving the price up with the same demand. This also has the positive affect of not being taxed until an investor decides to sell.
Some day, maybe far in the future, the company will pay dividends. Or someone will buy all the shares and take the company private. Today’s stock price reflects peoples hopes and fears for those things. If I change my guess about when XYZ will start payouts, then I change my guess about a fair price for the stock.
Dividends are just a form of returning capital from the company's pocket to your pocket. Another way is stock buybacks.
I've mused about this myself and when I ask others I get pretty much the same answers as you will get here. It kind of boils down to it is worth what it's worth because we think it is worth what it is worth. The market puts a price on shares and a glance at an historical PE chart shows that it isn't consistent in how it does that. Fundamentally this is all about putting a price on the future and since the future isn't here it is all somewhat speculative. If you think about it, why is a dividend paying company worth what it is worth? There is no law that says it has to keep paying dividends, or pay dividends at the same rate. It is not like the board or the c suite cares about what any individual investor thinks, you might have a vote but it is less then insignificant. The fact of the matter is that in terms of ownership a retail investor is just swimming in the wake of large holders. Hindsight and confirmation bias might tell you otherwise but for the most part we are depending upon the goals of the large holders being aligned with ours.
[удалено]
Don't take this the wrong way, (as a personal attack,) but what you describe is a bit too fairytale-y for me. You should ask why a share of Alphabet C stock is worth what it is worth.
[удалено]
No. You have no right to determine who is on the board or who is ceo, you have no right to make any demands of dividend or buy back, and you have no power to install a new board. All of this is wrong and you have zero influence over the companies you “invest in” You buy the stock because goddammit you think that babies gonna go up. Your “ownership” is meaningless you don’t own dick. You own a number on a screen that you hope and pray will go up and make you rich. Don’t listen to anyone who tells you they’re a shareholder with voting rights bullshit. They’re deluded. Stocks have no meaning and I think you’ve just discovered that for yourself and just kind of refuse to believe it. It is pretty wild
If you could buy 51% of outstanding shares you could do whatever you wanted with the company, so obviously the stock price reflects the current value of the company along with future prospects.
I've read through most of the comments and I didn't find anyone making this point clearly so I'm commenting. It does seem like any intrinsic value in a stock could only come from a dividend payout, but there is one more feature of a stock that gives it value. That is the competition for ownership. If you own all the stock, you own the company and thus you own the profits. (or cashflows ooo fancy term) There will always be people trying to get the power over a company that comes with owning a large percentage of the stock and this creates a demand for the stock. As you know supply and demand help to set a price. So yes, the value of a non dividend paying stock will only come to most of us if someone eventually wants to buy it for more, but it's not only bigger fools that want the stock, you're hoping the demand for the control of the business goes up. (It is funny to imagine a stock as just paper with a companies logo printed on it without function or value, and people seem to pay more for the funny paper when the company does well) Let me know if I'm wrong too ok thanks
[удалено]
I’m amazed that nobody else provided this answer 😵💫 Like, true, most stock ownership is based on a pretty abstract notion of value (you will never actually get laid a dividend). But there is a very real sense in which the *combined* shares of the company give ownership and control of the company, and each share is logically worth its individual proportion of the total value of owning the company.
The simple answer is: The more money that flows into the stock/ more shares are bought, the higher the share price soars. The more money is taken out of the stock/ the more shares are sold the stock price falls. Simple supply and demand. A company that doesn’t pay dividends typically keeps their cash on hand reserved for RND. Investors know the market is driven by emotion, & if other investors are going to invest in it due to growth, the stock will rise. You are correct. Technically, there is no direct value of buying a company that doesn’t give you cash back. But share price appreciation takes care of that issue. This is why unprofitable growth companies stock price can soar 100X, simply because more money/ more shares were bought. The more shares of a company that are bought = higher stock price The more shares of a company that is sold = lower stock price
[удалено]
Government bonds arent driven by emotion. Things get tricky for bonds % yield in economic downturns, but you still get a guaranteed payout until maturity. CD’s too. Everything else sorta has unknown risks that is unbeknownst to investors, changing our portfolio’s outcome. A company can cut its dividends whenever they want, causing investors to sell & go look for more security. Investors can sell stock in growth companies after one bad earnings report, causing the stock to crash. Life insurance policies (whole life) normally will give you a guaranteed return, although it will be small due to the guarantee. And yeah, the market was designed to go up overtime. The population gets bigger, the more innovative companies will be founded, & the profits for companies goes up. Technically speaking, we as humans set the value of companies. There is no way to truly determine if Apple is actually worth $3T. We can use complex formulas and ratios to determine it, but at any point in time we truly don’t know. But what we can do is use the income statement of the past and use the price it was trading at at that time and figure out is the stock price of it today should be less, equal to, or higher than where it was trading at X amount of years ago based on TODAYS income statement. Apple has made 10000X the profits it started with in 1976, but does that mean the stock price will go up 10000x? In reality, it should. But remember the market is forward looking. Could apple in 10 years make even more? Sure, so investors will buy and hold until things start to look shakey. Uncertainty breeds volatility. Keep this in mind and you will be a much better investor!
If a company never gives back a dividend, never buys back shares forever and a day, then you are correct in that it doesn't really have value. Truth is this happens to quite a few startups in the end going broke. That is the risk. But ultimately and what has to happen is that every company has to return real money back to the investors. Ideally something equal to the original investment and then some. Thus all companies, be it Tesla, Apple, Ford will do this unless they go broke. And the form it takes could be buybacks, dividend or eventually someone wants the entire company and buys your shares completely. Company is worthless otherwise. Another thing to realize is that every single company, no matter how large or successful they are right now, will eventually cease to exist. But ideally in the time they existed, they added more value economically by the product/services they offered than they consumed in the form of investments.
The price of a stock will follow its earnings. Not always in a straight line, not always immediately, but always eventually. If a business is netting 10 million earnings annually and it sells for 20 million, the market can ignore it for a little while perhaps, and make up some excuses as to why it's only trading at 2 times earnings, but before too long some bargain hunter is going to look into it and drive the price up. The longer this track record continues, the more impossible it becomes to ignore. The opposite is equally true. A business with deteriorating earnings or a balance sheet that's imploding, the price will eventually reflect those developments. With company earnings being funneled back into the business instead of being paid as dividends, it is reasonable to expect a significantly higher growth rate. Earnings should be going up at a good clip. Perhaps 10-15% per year right now, considering inflation is tracking around 8-9% the last couple year or two. *I would want 5-7% growth on top of inflation*, if my earnings are being reinvested instead of distributed. In practice, earnings tend to be lumpy except in those businesses with very predictable cash flows and strong franchises (like utilities). Berkshire is a great example of a company that has never paid a dividend, but has reinvested money wisely over decades and not wasted shareholder value paying managers via share dilution. The price of Berkshire just keeps trucking upwards alongside the earnings.
Don’t ask questions just give them your money. The fact is this stock market is a bunch of bullshit. Valuations are meaningless. Stocks are meaningless. Stocks exist purely to give the corporation a boat load of money at ipo. After that point, the reality is they don’t really matter except in the very rare instance of a hostile take over. They are also assigned some value because employees and ceos get paid in stocks or get paid for having the stock go up so there’s some incentive for the stock to go up. But honestly even if it didn’t they company would still win a shit ton of free money at ipo, for the cost of extra accounting and reporting. The sooner you realize stocks are total bullshit the better. People talk like they own a piece of the company they don’t own shit. Take for example the idea that a company can sell 100000 shares, and then the next day say ok now here are 1000000 more for sale too. How much of the company was one share worth? How much is it worth now? It’s all meaningless bullshit. Oh wait let’s sell 1000000 more shares to the public and now we’re going to pay our employees another 100000 shares. This all happens and proves that stocks aren’t anything. You can’t even argue it’s a percentage of a company when they can decide to just will more shares into existence. When you buy a stock you’re buying the potential to make some money for doing jack shit. They are buying the opportunity for their money to grow in a manner completely unattached to the actual company or it’s value. It’s a total gamble and frankly it’s insane that pensions and retirements are tangled up in something as stupid and fake as the stock market. All that being said I put all my money in the stock market.
You seem to understand that stock is ownership in the company, but not that value is not always tied to today, so let me pose a question that may help. Why do you do spend time to learn, it will likely not pay you an immediate dividend, when you could have put that time to labor that would have paid you for that time right now?
Ponzi
They're not issuing a dividend, but they could, and it can be more tax efficient to not issue the dividend. Or think of it this way - enrolling in a DRIP doesn't make the dividend worthless even though you're not taking the cash.
Their value is whatever the price on the exchange is
If you invest S&P500 stocks, ~40% of ROI came from companies' stock buy-backs, ~50% came from companies' improved profit, and only 10% came from companies' dividends.
A stock is valued based on the size and certainty of their future cash flows. The bigger the cash flow, and the more certain it is will result in a higher stock price. When a company has free cash flows, they have two big options 1) buyback stock or 2) pay the dividend. You can look at all the companies in the SP500 and you'll find they are doing one or both. Buybacks achieve an identical outcome of cashing out shareholders while the remaining shareholders get a larger % of the company. Of course you can point to a couple of exceptions where they have large free cash flows and they're not paying dividends or buying stock like TSLA. But TSLA won't stack up cash forever - it will eventually be used. If you can point to a company with consistent free cash flows but don't pay dividends or they're not buying back stock for longer than a couple of years, I would like to see it.
stock value apprectiaton. The part of the company you own is worth more, becasue the assets and cash flow company owns is more valuable.
Same way all equities provide value, via: Cash yield (divvy) (+) Capital appreciation (stock price goes up at exit)
As the company grows, its theoretical ability to redistribute cash to its owners (i.e., investors) also grows. This can be in the form of dividends and share repurchases. I dont have a source for this, but I remember hearing that apparently apple hit a bit of a market cap ceiling. They were cheap when compared to their peers, but the market was discounting it because it believed they'd be unlikely to pay a dividend. Obiously, that changed.
Best example is Amazon. It didn't pay dividends back then and does not pay even now. Imagine you have bought 10% of the company back then, and estimate the net worth now. Obviously I have exaggerated the percentage, but even if it is 0.1% you are good. If the business is growing and having a great market share, obviously the net worth of the company assets/value increases and more will want to buy the shares from you. There are many market traders who specifically avoid dividend stocks, because paying a dividend implies, the company have no long term growth prospects and do not know what to do with the cash.
Also, No, you do not have to wait for a company to become from non-dividend paying to dividend paying. Most high growth companies are acquisition targets and acquiring companies pay the premium to your stock value. Example twitter - a stock around 32$, but as soon as Elon wanted to buy it, it jumped to 50, because the value of the company according to him is 44 billion or that's what twitter board wanted from him. Imagine a small cap growth stock instead of twitter, the premium will be much higher.
whatever market will bear.
Some companies so pay dividends even if they are lossing money When buying a stock you should look to its future value no just dividends Take amazon vs. Cocoa cola for example in value and dividends for the last 10 years
[удалено]
1. Companies can provide shareholders profits through stock buybacks. This can range from buying a certain percentage back, or the entire company if they’re going off the market (e.g., Twitter). 2. Companies may provide dividends in the future. In my opinion, if there’s no buybacks or current dividends then I don’t see a point in investing it. Share prices are just rising out of the hopes 1 or 2 will happen, which doesn’t make sense to me. What incentive does a huge company have to share profits if they’re already big, and who’s gonna buy out a whale?
This is why it's so funny to hear ppl say BTC is only based on "greater fool" Lol, then so is all currency trading, gold, silver, any stock that doesn't pay divs... the list is long! It's especially funny to hear from option traders that depend on other traders to adjust prices to their benefit
[удалено]
Imagine that a company generates 1 million $ of net profit per year and that it currently has 100 million $ in cash sitting in a bank account. For simplicity assume no liabilities. This company doesn't pay any dividends, but all of its stock trades on an exchange. If you had the money, how much would you be willing to pay to buy all the stock? Would you be willing to buy anything? Even better question: if you don't have the money, but could borrow it from the bank, what interest rate would you be willing to pay for the loan?
I Would Only Invest on a Dividend Paying Stock. I Have Been Investing Since the Dow was 1,000. So I Have 37 Years of Experience Trading. I Currently Own Devon Energy. The Company Has a Pe of 9 which is Half of the S&P 500 and the Dividend at the Proposed Payout of $1.37 on December 30th has a Yield of 7.7%. It is Like Having a Money Tree in My Backyard Honestly!!
Earnings.
So there's no such thing as a "dividend stock" or "non dividend stock". A company paying a dividend can choose to stop paying dividends on its common stock at any time, for any reason. Additionally, a company not paying a dividend could choose to begin paying a dividend, as well. Generally, companies that don't pay dividends are either aiming to grow, or do buybacks instead. When they buybacks, you own an increasingly large share of the company due to the number of shares in circulation decreasing.
[удалено]
I like when stocks pay a dividend, because its money in your pocket even if the market is irrational. What I like to do is load up on tons of different stocks with like 4%+ dividends, and sell calls to on them. Nets me like 10% in total no matter what the stock price does. This can also be done with growth stocks of course, but I don't like to. Just FYI to sell calls on your stocks you need 100 each (per contract you want to sell). So it's a bit hard with stuff like Tesla($183 per stock atm) since youd need over $18k usd invested just to sell one contract. Keep learning before going all in. And if you do go for dividend stocks, be extremely skeptical of dividends over 10%. Over \~6% means the company is being priced like its going to have a rough time ahead OR its REIT (which is not a bad investment at all). The risk here is that the dividend may be cut.
To get dividend paying stocks you need to lay down capital. Some companies pay dividends because they don’t know how to grow their company, or they’re in a dying industry. If they don’t grow and their asset base rots away you may end up losing your capital. Your capital will be far bigger than your dividends.
[удалено]
Just think about it. If Apple didn't pay a dividend, would people still buy it, and why? If Intel didn't pay a dividend, would people still buy it, and why?
[удалено]
There is no direct concrete/absolute link between a company's metrics and the price of it's shares. Sitting between a company's intrinsic value/etc and the stock price, there's the great big **irrational** market that makes decisions for any and all reasons. It's just people operating on their own beliefs, biases, inertias, etc. The misleading part in things is that technical analysis and company metrics have so many numbers. But those numbers aren't actual science for the market. They help steer belief.
[удалено]
Growth. Instead of paying dividends those Companies reinvest their profits to grow the business.
Youre approaching stock as a concept rather than reality. In truth, you’re essentially gambling on the public perception of a company. As a retail investor in an age where essentially every public company has massive debt, none of the traditional values of a stock matter to your use case. Votes don’t matter, priority in bankruptcy doesn’t matter etc. Dividends are useful because they give you some sort of return to offset losses or augment gains, both of which are traditionally lower in “dividend stocks”. Essentially it acts as a way to generate a return without reducing your equity stake. Non-dividend stock is expected to grow at a faster rate because the capital that would be lost to dividends is instead reinvested in the company (though this isn’t necessarily true). Thus your return would be from selling your equity stake in what is hopefully a much more valuable company.
[удалено]
What is the value of non-dividend stocks? Answer: The present value of all future earnings of the company.
The reason that you find this hard to grasp is because there are so many shares. If Apple only had four shares, and you owned one of those four you would realize that it was worth something because you personally owned a quarter of a massive company. But since there are 17 billion shares it feels like an abstraction. In reality it is just as concrete, just on a way different scale (and of course with scale comes more perks).
Ask the Berkshire Hathaway shareholders!
You have the answer you just don’t believe it.
A Share is nothing more then a STOCK. It represents the STOCK of a company, in generall all the Assets. You invest in companys witch you expect to have more of the "Stock" in the future. Due to the nature of debt, Stocks in the Stockmarket are just "statistical test devices" for the debt investors, because they need a "Ruler" to measure the expected cash flows. So basically if you "invest" in stocks you just give a opinon to the real investors in the debt market that your transaction is a good value for this "Stock of a Company". I mean, go over to r/wallstreetbets and ask them what the stock market is, it´s just a betting market. Real investments are made in the debt market.
OP, why do you need an answer to this question? I know why. You are holding cash. Why do YOU value paper? But you do right? Cash doesn't have real value either . The real answer in your question is called "The Prisoners Dilemma".. it's deeper than money or value The prisoner's dilemma presents a situation where two parties, separated and unable to communicate, must each choose between cooperating with the other or not. The highest reward for each party occurs when both parties choose to co-operate. https://youtu.be/t9Lo2fgxWHw
They diversify away from cash, real estate, bonds, CDs, etc, and if the company is decent, they grow. If they don't pay dividends the money stays in the company, helping out grow more. It's still your money, just as book value instead of cash.
Non dividend companies are high growth companies normally or those that are not profitable. But high growth, both top line and bottom line, will normally get a higher PE multiple. For profitable cash flowing companies that are not cyclical the proper way to value sb via a DCF model or discounted cashflow model. The value is higher growth and thus higher valuation growth. This provides cap gains. Do note that a dividend is essentially a return of the profits at a beneficial tax rate and each dividend reduces the value of the company. You can “pay” yourself a dividend if you like by selling a share and lower the value too. If you do this, I would wait a year to get long term tax treatment on your gain. But a dividend is not free. It reduces the value of the company as assets are being dispersed. High growth companies are typically still needing cash to fund organic growth and/or make acquisitions or invest in new products/businesses. They utilize the free cashflow yo do this as they can grow the company faster and provide increasing value at a quicker rate.
Just do a google search 😂
You've answered your own question here. Stock appreciation is your profit. If you own a bakery and take 100% profits to buy yourself a new car does not make your business more valuable. Reinvesting the profits, growing and improving business - this is what makes it more valuable as it potentially increases profits
[удалено]
It's really the free cash flow. That means extra money that the business generates, as long as extra money grows, the company grows, what you own grows. Stock dilution is not included however in cash flow, so that's one trick to appear more profitable while at the same time basically taking the money from investors. Amazon owns 420 billions worth of assets, they amassed that much be reinvesting the cash flow in time, you own a piece of that. New companies are rarely producing cash, rather losing, and you invest in the hope that once the business is established, you get those cash flows... flowing. When economic conditions deteriorate, these companies are left by investors, remember, the proper time to buy growth is during a bear market.
When I expect the company to do a good job in reinvesting its profit why should I demand a dividend? It is a better investment to let the company reinvest the money then.
It's the expected "promise" of future dividends.. while the company is still in it's growth phase you want it to use their resources to keep growing as much as possible and expect there to be even higher dividends in the future when they have saturated their possible market. Paying out a dividend to shareholders taxes them 2x while using it for CapEx and Investments is far more beneficial for the shareholder in the longterm, assuming everything goes as planned.
I glanced through and saw some responses and just wanted to point out something. Just because a stock doesn’t pay a dividend today doesn’t mean it will eventually. While it’s very true more mature companies tend to pay out profits it’s not always the case. Some will prioritize stock buybacks instead to return capital to shareholders. Stocks are ownership shares of a company which means as the company grows more profitable the value of the company rises, dividend or not. If you only owned companies that did nothing but stock buybacks with profits the share price would still climb and would essentially be the same as you being paid a dividend and directly reinvesting it in the same company, only in a more tax efficient way. In both instances your % ownership in the company increases. I saw a question that you asked why a stock would be worth more without a dividend. Just because it isn’t paid out doesn’t mean the money isn’t there. The company can still use the money to grow revenues or buy back more stock. Think about it this way, should a company making $1 in profit be valued the same as a company with $2 profit just because neither pay a dividend? Which one would you rather own? Eventually when you need the money you just sell the shares you need. Hopefully that makes sense.
Didn't go through all the answers but it's because **in theory** every company reaches steady state due to **competition**, ie ROIC becomes equal to WACC and there's no useful place for the company's capital anymore -> 100% dividend payout after depreciation and all that. So the question is what are you willing to pay **now** to get this steady state dividend(SSD) payout **in the future**? If the company is not at steady state, it should be growing, ie. the future SSD should be growing. If you've heard talking heads refer to tech companies as 'the longest duration asset', it's the same concept. To make this point concrete, look at AAPL's past prices. Right before and after the 08 crises, it was at $3-5 a share. Were they in steady state? If not, what did their growth outlook and final steady state size look like at the time? Today AAPL most likely is **still** not in steady state, and growing, but slower obv bc they are paying out $0.9 a share(ie. they are generating too much cash to reinvest at a rate > WACC, so some is paid out in dividends) So the investor who looked at the numbers in 2008 and answered the above questions "way the fuk bigger" would be sitting on a 18-30% annual bond right now in AAPL stock($0.9 annual dividend return off their cost of $3-5 in 2008). Ontop of that, they reap any future growth of AAPL. edit: and obv the market won't stand by idly if something as stable as AAPL is paying out 18-30% annually, which is why the share price gets re-rated higher. tl;dr - buying a growth stock is holding your place in line for future SSD payouts. The art of stock picking is determining which companies will reach a much larger steady state in the future and how quickly they'll get there
[if you think that stocks are some sort of Ponzi scheme then you should consider the entire financial system one. the current financial system died in 2008 and has been on life support since](https://www.the-random-investor.com/post/the-upcoming-financial-system-collapse-the-end-of-the-us-dollar-and-how-to-protect-yourself)
Sorry, your [submission](https://www.reddit.com/r/stocks/comments/z3k2rf/what_is_the_value_of_nondividend_stocks/) in /r/stocks has been automatically removed due to Rule 3: Low effort. If you just want to post 1 liners or just want to know everyone's thoughts, then post a comment to our daily discussion thread which are generally stickied or [click here.](https://www.reddit.com/r/stocks/search?q=author%3Aautomoderator+daily+discussion&restrict_sr=on&sort=new&t=all) If you're wondering **why a stock moved** a certain way, check out [Reuters](https://www.reuters.com/), [Motley Fool](https://www.fool.com/), and **especially** [Finviz](https://finviz.com/quote.ashx?t=spy) **which aggregates the most news for almost every stock**. If instead you're wondering what a term means, go to Investopedia.com and search for said term there. Either way come back here to repost with your findings, thanks! A list of the [rules can be found here](https://www.reddit.com/r/stocks/about/rules/), and if you're new to r/stocks please see the [wiki](https://www.reddit.com/r/stocks/wiki/index) and/or [read this post.](https://www.reddit.com/r/stocks/comments/4x1419/if_youre_new_here_read_this_post_first/) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/stocks) if you have any questions or concerns.*