4 ms·

I understand that a share gives you a right to ownership in the company, but it's still strange to consider what the benefits are of owning a share in a company

by haney 10y ago

I understand that a share gives you a right to ownership in the company, but it's still strange to consider what the benefits are of owning a share in a company that likely won't pay a dividend in the foreseeable future and for which you have no recourse through corporate governance over the direction of the company. I'm sure that class C stock will be correlated to class A stock but this sort of sounds like a security who's price is dictated by my ability to find a greater fool to purchase it in the future.

estreeper 10y ago
In finance theory, as long as a company is able to grow at a rate higher than the rate at which you could reinvest your dividends, you prefer not to receive a dividend. More simply, the idea is that the money staying in the company will grow more quickly than if it's outside of the company so long as the company is doing well. Like a lot of financial theory, I think this is partly true. However, in my view, one of the side benefits of companies giving dividends is that it acts as a sort of long-term "anchor" to the stock's instrinsic value: the amount the company's stock is actually worth, which is usually wildly different from what it's worth on the stock market. Let's say through careful analysis I find a company I think to be greatly undervalued in the stock market. I buy a bunch of shares. If they don't pay a dividend, I'm just hoping that eventually the market will "notice" the discrepancy and the price will go up, but I bear a lot of risk because the opposite could happen. But, if that company pays dividends, and those dividends continue to grow, I am getting a real return which is not based on the vagaries of the market.
oldmanjay 10y ago
Or, you know, if it continues to increase in value, then the fool hypothesis a backup.
morgante 10y ago
Economically, they're identical. If Mark can get value out of his stock, so can you. Thinking that dividends are the only way to realize benefits is short-sighted.
jessriedel 10y ago
> it's still strange to consider what the benefits are of owning a share in a company that likely won't pay a dividend in the foreseeable future and for which you have no recourse through corporate governance over the direction of the company Isn't this true anytime you buy stock for a company where one person owns >50%? You know you can't influence anything with your vote; you're just buying a fraction of the future dividends. > I'm sure that class C stock will be correlated to class A stock but this sort of sounds like a security who's price is dictated by my ability to find a greater fool to purchase it in the future. For almost all companies, most of the stock's expected value derives from future scenarios where the company pays out dividends like normal (even if they aren't paying any currently). The expected value derived from the possibility of liquidating the assets and returning all money to the shareholders is nonzero but very small, simply because the chance of this happening is small. So this greater-fool critique would apply to any stock that isn't paying out dividends in the near term, not just those for which there is no voting control.

by haney 10y ago

estreeper 10y ago

In finance theory, as long as a company is able to grow at a rate higher than the rate at which you could reinvest your dividends, you prefer not to receive a dividend. More simply, the idea is that the money staying in the company will grow more quickly than if it's outside of the company so long as the company is doing well. Like a lot of financial theory, I think this is partly true. However, in my view, one of the side benefits of companies giving dividends is that it acts as a sort of long-term "anchor" to the stock's instrinsic value: the amount the company's stock is actually worth, which is usually wildly different from what it's worth on the stock market. Let's say through careful analysis I find a company I think to be greatly undervalued in the stock market. I buy a bunch of shares. If they don't pay a dividend, I'm just hoping that eventually the market will "notice" the discrepancy and the price will go up, but I bear a lot of risk because the opposite could happen. But, if that company pays dividends, and those dividends continue to grow, I am getting a real return which is not based on the vagaries of the market.

oldmanjay 10y ago

Or, you know, if it continues to increase in value, then the fool hypothesis a backup.

morgante 10y ago

Economically, they're identical. If Mark can get value out of his stock, so can you. Thinking that dividends are the only way to realize benefits is short-sighted.

jessriedel 10y ago

> it's still strange to consider what the benefits are of owning a share in a company that likely won't pay a dividend in the foreseeable future and for which you have no recourse through corporate governance over the direction of the company Isn't this true anytime you buy stock for a company where one person owns >50%? You know you can't influence anything with your vote; you're just buying a fraction of the future dividends. > I'm sure that class C stock will be correlated to class A stock but this sort of sounds like a security who's price is dictated by my ability to find a greater fool to purchase it in the future. For almost all companies, most of the stock's expected value derives from future scenarios where the company pays out dividends like normal (even if they aren't paying any currently). The expected value derived from the possibility of liquidating the assets and returning all money to the shareholders is nonzero but very small, simply because the chance of this happening is small. So this greater-fool critique would apply to any stock that isn't paying out dividends in the near term, not just those for which there is no voting control.