Can someone explain to me the purpose of a dividend?

Discussion in 'Trading' started by Nofear777, Nov 26, 2008.

  1. Ok I am a complete noob I guess. But for the life of me I cant figure out what the purpose of a dividend is if the stock price is adjusted by exactly the amount you are paid.

    EDIT: One thing I just thought up of. Dividends dont depend on liquidity...

    Thats a big plus.
  2. gnome


    1. To convert potential capital gain to ordinary income... taxed at a higher rate.

    2. Allows the Gummint to tax the same $1 of earnings, TWICE.
  3. You lost me. Can you explain this in lamans terms please.

    Thanks for the reply.

    EDIT i understand the first part... i think.

    Second part is, why would I want to be taxed 2x?
  4. GTS


    A stock's price is determined by supply and demand.

  5. I never mentioned a stock price.
  6. GTS


    Really - then what were the words in my post that I quoted from you? :confused:
  7. BTW I pay alot of taxes, do you think it would help me to be in higher dividend yielding stocks rather than growth stocks?

    Not considering stock prices.
  8. "Dividends are payments made by a corporation to its shareholder members. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend."

  9. GTS


    No - with growth stocks you get decide when to realize the gains/pay taxes (when you sell), with dividend-yielding stocks you have to pay taxes as you receive the dividends.
  10. timbo


    It gives retail that warm fuzzy feeling and to the rest, a quest to do better.
    #10     Nov 26, 2008