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When I was younger, I could never understand the purpose of stocks that don't give off dividends. I just could not wrap my head around the concept of buying som

by tkahn6 16y ago

When I was younger, I could never understand the purpose of stocks that don't give off dividends. I just could not wrap my head around the concept of buying something for the sole purpose of expecting it to increase in value. It still boggles my mind.

vomjom 16y ago
At least in economic theory, a company does not give out dividends if it believes that it can get a better return on its cash (in terms of profit) than the investor can in the overall market. But, companies must eventually give out dividends. There's a certain point at which the company's cash hoard gets so large that investors become unhappy (see Microsoft).
- afusiak 16y ago
  Stock buybacks are an excellent alternative to providing dividends for a company that wants to return money back to it's owners.
  - dirtae 16y ago
    Yes, theoretically. In practice, managements have a long history of buying stock back at inflated prices and buying back stock simply to hide the shareholder dilution that is occurring due to management equity compensation. I prefer dividends to buybacks. Companies tend to announce buybacks when things are going well and their stock is fully priced. How many companies were announcing buybacks in December 2008 when it would have really made sense?
lotharbot 16y ago
Buying a stock is, essentially, buying a piece of a company. It's nice to own stock in a company that's currently profitable and get a share of its current profits; it also makes sense to own stock in a company you expect to become profitable in the future and get a share of its future profits. Stocks can be a good investment even if they don't presently give off dividends. Stocks that will never give off dividends are a bit different. I suppose they give you "ownership" of some portion of the company's assets, so if the price is less than the value of the current or future assets represented by a stock, that can also be a good investment. What doesn't make sense is buying stocks that don't pay dividends, won't pay dividends, and are priced high in comparison to the company's current and expected future assets. Buying stocks in that category is like buying a house as an "investment" in 2008. EDIT: HN user jakarta said it better a couple weeks ago: http://news.ycombinator.com/item?id=1581366 http://news.ycombinator.com/item?id=1581366
- tkahn6 16y ago
  So would it make sense to buy a share of Berkshire-Hathaway?

by tkahn6 16y ago

vomjom 16y ago

At least in economic theory, a company does not give out dividends if it believes that it can get a better return on its cash (in terms of profit) than the investor can in the overall market. But, companies must eventually give out dividends. There's a certain point at which the company's cash hoard gets so large that investors become unhappy (see Microsoft).

afusiak 16y ago
Stock buybacks are an excellent alternative to providing dividends for a company that wants to return money back to it's owners.
- dirtae 16y ago
  Yes, theoretically. In practice, managements have a long history of buying stock back at inflated prices and buying back stock simply to hide the shareholder dilution that is occurring due to management equity compensation. I prefer dividends to buybacks. Companies tend to announce buybacks when things are going well and their stock is fully priced. How many companies were announcing buybacks in December 2008 when it would have really made sense?

lotharbot 16y ago

Buying a stock is, essentially, buying a piece of a company. It's nice to own stock in a company that's currently profitable and get a share of its current profits; it also makes sense to own stock in a company you expect to become profitable in the future and get a share of its future profits. Stocks can be a good investment even if they don't presently give off dividends. Stocks that will never give off dividends are a bit different. I suppose they give you "ownership" of some portion of the company's assets, so if the price is less than the value of the current or future assets represented by a stock, that can also be a good investment. What doesn't make sense is buying stocks that don't pay dividends, won't pay dividends, and are priced high in comparison to the company's current and expected future assets. Buying stocks in that category is like buying a house as an "investment" in 2008. EDIT: HN user jakarta said it better a couple weeks ago: http://news.ycombinator.com/item?id=1581366 http://news.ycombinator.com/item?id=1581366

tkahn6 16y ago
So would it make sense to buy a share of Berkshire-Hathaway?