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Possibly very naive question but why are dividends paid at all if it's essentially a noop? If they are paid in cash the stock I own is worth less by the same am

by kriro 10y ago

Possibly very naive question but why are dividends paid at all if it's essentially a noop? If they are paid in cash the stock I own is worth less by the same amount and if they are paid in stocks my initial stock is diluted by the same amount. Do voting and non-voting shares typically receive the same amount of dividends? The only differences I can see between cash and stock dividends is 1) For cash dividends I pay taxes now, for stock I typically pay upon the sale of said stock.* 2) A company issuing cash dividends has less liquid cash in the bank (also applies to the shareholders who get liquid cash). *both are taxed as capital gains here, might be different tax wise in other countries which could complicate things

AznHisoka 10y ago
Dividend is cold hard cash in your bank account. Stocks is not cash and needs to be liquified. Your million dollar portfolio could theoretically be worth $0 any day.
- kriro 10y ago
  I a reasonably liquid market I could just sell my stocks to get cash. If I don't trust the company to grow I should take the cash dividend but probably also sell all my stock in it (and invest it elsewhere).
harryh 10y ago
Companies, in general, pay dividends when they have cash that they do not have a productive use for. It doesn't make sense for a company to keep too much cash invested in a low return investment (like a bank account or short term treasuries) so in this case the company gives it back to the owners so that they can use the money more productively. Interestingly enough this generalization is contradicted by several large US tech companies who have accumulated unprecedented cash hordes. It's interesting to think about why this might be happening.
- kgwgk 10y ago
  It's in part because they cannot distribute that money until it's legally owned by the US parent company and that requires paying some additional taxes.
  - harryh 10y ago
    Indeed it is. Also probably because tech is a risky field and companies feel that calls for larger reserves.
mywittyname 10y ago
Eventually, investors want their money back. For example, if you bought an apartment complex, you'd eventually want to get put a portion of those rents in your bank account right (that's the point of an investment after all)? The apartment example makes this a little more clear. Your options for extracting wealth are basically, earn a dividend or sell a portion of the holdings. Since only 100% of the company can be sold, you lose value each time you liquidate holdings and eventually you no longer have anything to sell. Dividends can continue as long as the company is earning a profit. With large companies, the bulk of investors reinvest dividends, so it makes sense for them to have a scheme in place that just grants the shareholder more shares. However, they need to eventually buyback the stock for a stock distribution scheme to be the same as a dividend distribution scheme.

by kriro 10y ago

AznHisoka 10y ago

Dividend is cold hard cash in your bank account. Stocks is not cash and needs to be liquified. Your million dollar portfolio could theoretically be worth $0 any day.

kriro 10y ago
I a reasonably liquid market I could just sell my stocks to get cash. If I don't trust the company to grow I should take the cash dividend but probably also sell all my stock in it (and invest it elsewhere).

harryh 10y ago

Companies, in general, pay dividends when they have cash that they do not have a productive use for. It doesn't make sense for a company to keep too much cash invested in a low return investment (like a bank account or short term treasuries) so in this case the company gives it back to the owners so that they can use the money more productively. Interestingly enough this generalization is contradicted by several large US tech companies who have accumulated unprecedented cash hordes. It's interesting to think about why this might be happening.

kgwgk 10y ago
It's in part because they cannot distribute that money until it's legally owned by the US parent company and that requires paying some additional taxes.
- harryh 10y ago
  Indeed it is. Also probably because tech is a risky field and companies feel that calls for larger reserves.

mywittyname 10y ago

Eventually, investors want their money back. For example, if you bought an apartment complex, you'd eventually want to get put a portion of those rents in your bank account right (that's the point of an investment after all)? The apartment example makes this a little more clear. Your options for extracting wealth are basically, earn a dividend or sell a portion of the holdings. Since only 100% of the company can be sold, you lose value each time you liquidate holdings and eventually you no longer have anything to sell. Dividends can continue as long as the company is earning a profit. With large companies, the bulk of investors reinvest dividends, so it makes sense for them to have a scheme in place that just grants the shareholder more shares. However, they need to eventually buyback the stock for a stock distribution scheme to be the same as a dividend distribution scheme.