4 ms·

If everyone invests passive, you could make a ton of money by buying companies which are worth more than their stock or just give you an extremely high dividend

• ThrustVectoring 8y ago
  A company's dividend has zero bearing on the fair price of its stock. Profits do, but that's a separate decision from dividend. Any money a company makes is either invested in growing the business (increasing the stock's value), or returned to investors, and as long as the investment makes economic sense you don't care either way. Dividends vs stock buybacks are a wash economically - if you look at cash flows, they both reduce the market cap by the cash given to investors. It's just that dividends reduce the price of the stock directly, while buybacks reduce the number of shares outstanding.
  • seppel 8y ago
    > It's just that dividends reduce the price of the stock directly Dividends reduce the price of the stock directly because there is an active market. Once the dividend is paid out, the stock price is decreased by the dividend because this is what market makers are willing to pay now. Without any active market, paying out a dividend would not influence the price, because there are no market makers to begin with. This is of course absurd, so there will always be an active market.