Nofear777, You mentioned that a stock price is lowered by the amount the dividend is paid. I think that's what the last poster was referring to. It is usually expected a stock will fall by the dividend amount, but of course market forces can make a stock go up or down much more then the dividend amount sometimes. For example, a stock that is at $50 and pays a $1 dividend doesn't go to exactly $49 the next day necessarily. If they also reported good numbers or were upgraded or whatever, it could open at $52 the next day, or if the market was bad or they were downgraded or whatever, they could open at $48. In either event however, the stock holder was paid their $1 per share. I agree with the comment about the market setting the prices. No fundmentals, forcasts, etc. set stock market prices - it is just buying and selling. As far as why companies pay out dividends, it seems like some companies do it just to show they are stable and to reward buy and holders each month or quarter with the dividend even if the stock price doesn't go up. Here is some info I found in the following link: http://www.investopedia.com/articles/03/011703.asp?viewed=1 Arguments For Dividends: "In opposition to these two arguments is the idea that a high dividend payout is important for investors because dividends provide certainty about the company's financial well-being; dividends are also attractive for investors looking to secure current income. In addition, there are many examples of how the decrease and increase of a dividend distribution can affect the price of a security. Companies that have a long-standing history of stable dividend payouts would be negatively affected by lowering or omitting dividend distributions; these companies would be positively affected by increasing dividend payouts or making additional payouts of the same dividends. Furthermore, companies without a dividend history are generally viewed favorably when they declare new dividends. " JJacksET4
But it missed the part about the stock price declining in cojunction with dividend. So you guys are basicaly telling me that dividends are worthless? ASide from the liquidity issue.
No i understand that. What I am saying here is, if ALL THINGS REMAIN THE SAME, the stock price will fall by 1 dollar. So again, what is the purpose of a dividend? Without the dividend the stock price should the thoereticaly 1 dollar higher that day, wether its down 100 dollars (instead of 101) or up a 100 dollars(instead of 99). So far the only benefit I can think of is liquidity issue, where you need no liquidity to collect the dividend , I am still confused about the tax implications , other than that they are worse off when selecting dividends.
That is the most frightening question I have ever encountered. Finish school dude ... OMG. Or at least start ... First and foremost, shareholders are part-owners of a business. Owners are entitled to profits generated. Profits should only be retained, i.e. not paid out, if the business can earn an excess return on reinvested profits. Some 60% of acquisitions destroy value. Leave enough cash in the hands of a CEO and sooner or later he will find something unprofitable to do with it. It is after all in his self-interest to grow the company, even if that growth is less profitable than, say, government debt. To the point, your comment " if the stock price is adjusted by exactly the amount you are paid" IS WRONG. The price adjust exactly BECAUSE YOU WERE PAID. If the company instead retained that cash, the stock price would sell at a discount to that cash. Because CEOs can do no good with cash. Close your account and get a f*cking education dude. Start with Ben Graham's Intelligent Investor, Chapter 1: Investment vs. Speculation and Chapter 19: Shareholders and Managements: Dividend Policy. Dumb questions are fine. That was frightening ...
If you buy a share of stock you become an "owner" of that company, along with every other person who holds the same stock. If a company is profitable they can do one of three things with the money. 1. Reinvest it in future projects with the hope of generating a high return on the result of this project. 2. In the absence of such opportunities the company returns the money to the shareholders in the form of a dividend. 3. Let the money sit in a bank somewhere. This should always be the last choice but many corporations have chosen this option. MSFT is a perfect example. A corporation is supposed to act in the best interest of its shareholders. Nothing could be farther from the truth. A corporation acts in the best interests of those who manage the corporation. There are exceptions but they are fairly rare.
Another clueless trader talking about something he doesn't understand. Price and value are completely separate things. You are concerned with price. Please, don't pretend to talk about value.
Back in the day the dividend yield was a major reason why you bought shares. Most stock prices were discounted future dividends, now more or less they are discount future cash flows or something similar. Creating your own dividend by selling part shares is essentially the same thing. Then taxes change the net value, so a capital gain is worth more than dividend. Which probably led to a trend towards seeking capital gains vs. dividends. Consider an investment in a private corporation, your returns are solely from dividends, as its nearly impossible to sell shares in private firms.