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There are plenty of stocks that no one ever expects any distribution or dividend from, but they know it represents a claim on real value (assets and incomes) in
by jeremyjh 9y ago
There are plenty of stocks that no one ever expects any distribution or dividend from, but they know it represents a claim on real value (assets and incomes) in the business, and that there is a market where they can resell it for more money if the value of the underlying assets increase. All the incomes may go back into the business but that doesn't mean they don't increase real value.
- tomkarlo 9y agoAt the end of the day, on even these stocks, the value is still predicated upon either those assets being sold and the value being distributed, or those incomes turning into a dividend or liquidation value. A business that reinvests its income into its own business does to because it believes that the return on that investment in the future exceeds the rate of return demanded by its equity investors. Otherwise, doing that would reduce the value of the stock. It's impossible to assess, of course, but the true value of any equity is the net present value of the future cash it will generate for its holders. Full stop. Equity holders don't care about value in the business that won't translate into dollars coming out of the stock at some point in time.