I understand that a share of stock represents a share of ownership in a company. But if dividends are not paid, what is the actual value of that stock? Why does it have value? The company making more money does not flow to me because I own the stock. So is it basically just like owning a baseball card in that if the player (company) does well more people want to collect (own) their cards (stock) and this the price goes up?
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Dividends aren’t important. Your premise is often repeated by people just learning about the market is a general indication that some bigger concepts need to be explained. Dividends by many people learning the market seem like the best thing ever, but they aren’t important. I’ll explain a bit why this doesn’t matter for most people (there are cases it does and it has to do with taxes and insider trading, but thats out of scope).
Dividends are essentially a *forced* sale of stock. When dividends are paid, the stock drops exactly by that amount. Its basically the same as selling stock, but you get no say in it.
For example. Your stock is worth $100 and you have 100 shares. That is you have a value of $10,000. Say a dividend pays $1 per share. You now have $100 in the bank ($1 for each of the 100 shares you own) and each share you have is now worth $99 each, since the price decrease by $1/share/ You know have $9900 in stock + $100 in bank = $10,000 nothing has changed in the overall dollar value for you. You just have a lower value of stock and $100 in the bank
Basically this is as if you sold 1 of 100 your shares at $100. But you didn’t’ have a choice, the company forced you to sell it. What if you didn’t want to sell it?
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