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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It’s considered a financial asset. Theoretically if the company decided to liquidate – or sell itself – you would be paid your share of the assets of the company. If those go up in value, your share could be worth more on paper.
In practice this doesn’t usually happen because most companies have a lot of revolving debt and most people aren’t looking to buy large public companies with cash. I’ve owned a couple that were and yeah, your account is sent a check. This is what happened with Twitter where all the existing owners were paid cash for their shares by Elon Musk.
Otherwise, stock is a valuable financial asset because there’s a market for what people will pay for it, because there’s a market for what people will pay for it. Stock in private companies that’s hard to trade *and* has no say in how the company is run is often devaluated greatly.
The analogy is you own the baseball team, not a baseball card. As the owner of the team you could pay a dividend (extract cash) or keep the cash invested and working to make the team better and more profitable.
The price dictates the value of the company.
Dividends almost always come out of share price, so a $100 stock that pays a $2 dividend will go down to $98.
You hope in the future that the value of the company increases and sell it at that higher value. So yes sorta like collectibles.
It’s because you think it might pay dividends in the future, and/or you think its value will rise and you can sell it later for a gain.
And it’s more than just “owning a baseball card”. You get a vote in the company (usually). Of course in practice most people ignore that fact because their 1 vote or few votes doesn’t mean much compared to the larger shareholders, but it’s still a fact.
Whoever is downvoting correct answers needs to stop that.
Companies that pay big dividends don’t see much growth in the stock price.
Companies that don’t pay dividends are putting that money back towards making the company better (hopefully).
The stock price usually rises faster with companies that pay out little to no dividend
It is the hope that every stock will eventually pay dividends.
The current price is the expected value of those dividends in the future. I.e. buy it now for $1 and it has a 30% chance in 10 years it will be giving you $10 a year.
More risk, lower price. Higher expected payout, higher price.
Sometimes that never happens because the company goes bankrupt, goes private, or something, but at that point they will pay you the value of the company at that time.
Simple answer: a company’s stock price is based on the *perception* of that company’s *future* earnings. As that perception improves for any reason whatsoever, the stock price goes up. Buying a share of stock is very much like placing a bet that that’s going to happen.
Imagine you have 10,000 shares in a company worth $50 each, giving you a $500,000 investment. Assume that the company does not pay dividends.
Over time, the stock increases in value. Eventually, it is $100 per share. So you sell 5,000 shares and get everything you invested back, $500,000, and still have $500,000 invested.
there are three main ways to monetize stock (outside of selling it to someone else, which is just passing value)
1. as you pointed out, dividends. Company may or may not decide to pay dividends in the future.
2. stock buyback. In some instances, you don’t sell stock to another investor, but back to company. This means that there are more money in the market, because you don’t just sell to each other, but also gaining money from the company. If the company continued perpetually, eventually most of the investors would be paid out.
3. someone else either buying or merging the company. usually, part of the deal is in cash, so you’ll get some money back. If you invested early, it might be much more than you originally invested plus you usually also get to keep some stock of newly formed company
Well, often the consumer’s purpose of investing in a company is that the value of your shares could increase beyond what you paid for it, so you could increase the value of your investment that way. If you buy 10,000 shares of something that trades at $1 on monday, and it goes up 10 cents on tuesday, then on tuesday you made a capital gain of $1000.
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