Stocks without dividends?

[Guppies]

I've been trying to grasp why exactly stocks are worth money and its turning out to be a harder concept than I had expected, maybe someone here could shed some light on the topic for me.

I understand the concept of a stock being a piece of ownership in a company. Although this brings voting rights in the company it seems that this in itself has really no intrinsic value. I.e ownership in a company is really only worth anything as long as you share in the companies profits. Now this is where dividends come in to the picture. The way I understand it, dividends are a companies way of sharing its profits with its shareholders. Ok, that makes sense to me and justifies a stock having some value. But what about when a company does not distribute dividends?

Why are people willing to pay money for a title that confers part ownership of a company but will not entitle you to any of that company's profits? I know there must be more to it than just the fact that the price of the stock might go up, for if this were the case there would seem to be no difference between, say, stocks on an exchange and tulip bulbs in 17th century Holland.

[Strickly Bidness]

the dollar bills in ur pocket have no intrinsic value either. they only have value because people think that they do, just like the stocks.

[RedJoker]

You own part of the companies assets and future cash flows, the company retains it's earnings because it believes it can get a better rate of return. If you agree then you hold onto the shares, if not then you can sell and put the money where you think you'll get a better rate of return.

Dividends are tax inefficient and by not paying dividends the book value of the company is greater, making the shares more valuable.

[Guppies]

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You own part of the companies assets and future cash flows

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It's nice to own assets and cash flow but it doesn't seem that the ownership actually gets you anything, the only way you will receive a profit from this ownership (besides stock appreciation and dividends) is if the company liquidates, which is obviously not what you are usually hoping for when you buy a stock. So, this still leaves the question, why are people willing to pay money for part ownership of a company's assets and cash flow if they do not profit directly from these things?

[Thremp]

Guppies,


Any stock which will never return money to an investor has a value of nothing. Its a black hole for money. All investors expect dividends now or at a later time.

[kiffl]

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Guppies,


Any stock which will never return money to an investor has a value of nothing. Its a black hole for money. All investors expect dividends now or at a later time.

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Please pay no attention to this statement, it is very wrong. If you do not believe me look at BRK, it does not pay a dividend.

[Evan]

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Guppies,


Any stock which will never return money to an investor has a value of nothing. Its a black hole for money. All investors expect dividends now or at a later time.

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Please pay no attention to this statement, it is very wrong. If you do not believe me look at BRK, it does not pay a dividend.

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No, you are wrong.

[Thremp]

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Guppies,


Any stock which will never return money to an investor has a value of nothing. Its a black hole for money. All investors expect dividends now or at a later time.

[/ QUOTE ]

Please pay no attention to this statement, it is very wrong. If you do not believe me look at BRK, it does not pay a dividend.

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Cool. So what are investors getting back? They have put money into the company... and...?

You sit down when you pee. You wipe front to back.

[Guppies]

Ok, so the valuation of a stock goes up as the company grows because it will have the ability to pay larger dividends in the future?

[Thremp]

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Ok, so the valuation of a stock goes up as the company grows because it will have the ability to pay larger dividends in the future?

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Or any at all. Take a start-up. They have no monies. The raise funds with stock. One day they will pay dividends. Share prices are controlled by the future value of cash flows. If a company has no cash flows... It would be zero. There is an expectation at some point in time a company will return money to shareholders. I think you can look at a lot of the big tech startups (Google, Amazon, etc) for how this works/is working.

I'm not an expert and this is a really primitive rehash from my finance courses, but yeah... It essentially explains how this works.