my smooth brain cannot comprehend. please and thank you
In: Economics
There are two underlying drivers of returns with stocks:
1) increases/decreases in sale value (stock goes from $100 —> $150 [50% gain] or from $100 —> $50 [50% loss]
2) cash paid to shareholders (aka ‘dividends’)
If I invest $100 and:
a) the stock grows in value to $150 and I sell
OR
b) I get a $10 dividend and the stock grows in value to $140 and i sell
I get a $50 gain (or 50%) return in either case (before taxes).
So to directly answer your question, you can generate at return buy buying a stock and reselling at a higher price without ever receiving a dividend.
It’s worth noting that that gain in value is a reflection of expected future cash flows to be paid out in dividends, so another way if thinking about this is that the growth in the stock prices is really just paying up for the opportunity to receive more dividends further down the road.
Hope this help. Let me know if I can help clarify this further.
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