You have a right to a portion of the proceeds from a merger or acquisition.
Whether or not the company ever actually pays out its earnings as dividends, there's little way to access those earnings without divvying them up amongst the company's shareholders.
A merger or acquisition would only happen if the buyer expected to make money from the transaction. This looks like an Even Bigger Fool Theory. It is a little different because the CEO could take dividends whereas I, as a stockowner, cannot.
Potentially, a company's performance being good would motivate someone else to buy the company. But what I'm getting out of this is that you don't buy (dividendless) stocks because a company's doing well but ONLY if A) you think they will be sold or Bigger Fool Theory
If a company has a billion dollars more cash than liabilities, it's worth at least a billion dollars in a M&A deal today. You don't need a bigger fool, just someone who's willing to wind down a business to net assets. See what happened to Yahoo as a creative example of this - the operating business was a net liability, but it owned a good chunk of valuable Alibaba stock that made the stock positive-value, so it got split up, sold off, and wound down.
The dividends don't matter, IMO. It's net assets and net profits that do.
Re-investing the profit is a choice by management that turns company assets into more company assets. It doesn't turn company assets into outbound cashflow to owners and investors.
Sure. Might be easier if I use specific companies and people.
If Snapchat ends up being wildly profitable, Evan Spiegel can't simply spend those profits, because they belong to Snapchat. If he wants to spend those profits, his choices are to either collect a dividend from the stock he owns, have Snapchat buy back his shares, or sell the right to participate in those future events on the open market.
Or with a super simplified analogy: Snapchat is a box with some cash and the operating business inside it. When Snapchat makes money, it means there's more cash in the box. If someone wants to buy the box, they pay shareholders for it, and if there's more cash in the box the buyer is going to pay more for the box. Paying a dividend is taking cash out of the box and handing it to shareholders. The value of the cash plus the rest of the box is the same whether the box gives money to the owners directly (through a dividend) or indirectly (by getting bought for more money). So really, dividends don't matter. If the company decides not to pay a dividend, it turns $X of stock + $Y of dividend into $X + $Y of stock.
For companies experiencing a high rate of growth and good long term ROI, many investors would prefer the company reinvest the net revenue instead of paying dividends.
Some investors prefer capital gains due to tax treatment (long term gains vs income tax). Many companies oblige this with stock buybacks.
What you describe is the bigger fool theory can certainly have a relationship to dividends, whereby the assumption is that in some future state after growth slows or plateaus, then that's when dividends will start to be returned.
Shareholders decide what corps do. *But you're right that some tech companies are doing this new model where founders reserve control of boards and in that model you're right, it's a fundamental shift.
In theory, you're buying future profits. The profits may never be distributed, but that claim is still worth something. A hundred dollar bill in a block of ice is still worth $100 or so, and can be bought and sold as appropriate.
Sure, but how often does it actually happen? It looks to me (admittedly as a clueless outsider) that the probability of any company issuing dividends is near 0.
It is often better for everyone involved (thanks to slimy but legal tax structures) to NOT provide dividends, even if there is no other use for the money; In that case, the would-be-dividend is incorporated into the price of the share (just as it is on the day before dividend payment from a company that DOES pay dividend), and you can realize it by selling the share.
> the would-be-dividend is incorporated into the price of the share
This is right where we started. I'm not actually going to get the dividend, and neither will anyone else, so why would I or anyone I might sell it to pay more for that stock than I would otherwise?
that's what my issue with stock investment is. They aren't financial tools, in the way I'd like to think of a financial tool like a loan or interest-bearing account.
They're gambling on what other people en masse will value a stock - some of whom are also trying to predict my actions.
If I predict price goes down, I should short.
If I predict prices goes up, I should buy.
Even the parent comment to my question says "you get money in case of a merger or acquisition" which to me is a bigger analogue of the Bigger Fool theory.
I only make money if another company buys the company I have stock in which they would buy only if they expect to make money. In their case, possibly whoever buys the company can take dividends (as the new CEO) but it still looks like a bizarre thing to do (buy stock).
