For instance, Volkswagen announced a special dividend payment of €19 in December per share. The share price dropped the next day by €19 as well. So as an investor, I didn’t gain anything (at least in the short term)? I received the dividend but my equity share is worth less that amount.
In: 3
Simplifying, the value of a company is the cash it has on had plus the present value of all the future cash it is going to earn. When the company pays out a dividend that money has to come from somewhere, and it comes from the company’s checking account. The company is simply worth less after the dividend. You are worth more. There is nothing about dividends that magically creates value, they just transfer cash from company to stockholder.
So why do they pay it? Because some investors prefer to receive dividends rather than sell a few shares anytime they need cash. Not all companies choose to pay dividends, for various reasons including the tax treatment, but they are very popular especially among older folks with lots of stocks in their retirement accounts.
Latest Answers