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Shareholders want a return on their investment in the company, and eventually shareholder pressure forces a company's directors to pay a dividend or initiate a

Shareholders want a return on their investment in the company, and eventually shareholder pressure forces a company's directors to pay a dividend or initiate a buyback of some sort. For small companies in growing markets investors might be willing to wait for either growth or an acquisition; a larger company in a mature market needs to compensate investors more immediately. Corporations ultimately serve the interests of their shareholders, so giving the money to the employees in the form of higher wages should in principle happen only when doing so advances the interests of the shareholders (e.g. to keep skilled workers in a tight labor market). For what it's worth, companies with a long history (25+ years) of growing dividend payments tend to outperform the broader market over long periods of time.

whatever1 7y ago
What is the marginal contribution of the shareholders to the bottom line of a 25+ yo company? What is the corresponding contribution of it's workforce? Why the shareholders should have priority? Let's say I buy WalMart stock tomorrow, why should I be prioritized in the distribution of profits next year? I never gave a dime to WalMart, at best I helped the stock price a little. The folks at the warehouse though, have a measurable contribution to the performance of the company. Or in other words, why WalMart has to pay to the eternity a "loan" that it got at the IPO, and not use the money for improving the company itself with the potential to further increase its value?
- betterunix2 7y ago
  Actually the stockholders are last in line -- "profit" is what is left over after all the other expenses are paid. Employees are entitled to their wages as long as they are employed; stockholders are not actually entitled to anything and may never see any return on their investment. Before stockholders can be paid, a company must pay its employees, its suppliers, its taxes, its bondholders, etc. That is the risk a stockholder accepts. It is wrong to think of a stockholder as having given a "loan," because that is not what stock represents. Stock represents an ownership stake in a business, and ownership is perpetual (a perpetual loan makes no sense -- it is not a "loan" if it can never be repaid). Stock ownership is transferable for a publicly traded company, which is why someone who did not buy their stake directly from the company can be entitled to all the benefits of someone who did. This is a good thing because it reduces the risk of investing -- if you invest in a company, and later on find yourself short on cash, you can sell your shares (though it may be for less than you paid, but that's just how it goes when you own something). If the buyer of your shares were not entitled to the same benefits as you, why would they buy the shares in the first place? That is also why a company ultimately serves the interest of its shareholders -- they are the owners. That is how a capitalist system works, so if you think this is problematic then you really have a problem with capitalism. What sort of system would you like to see? Communist systems have not been nearly as successful historically (which is why there are so few remaining) and socialism has only worked well as means of supporting capitalism (e.g. providing people with food, healthcare, education, transportation, and whatnot so that they can participate in a capitalist system in a meaningful way).

whatever1 7y ago

What is the marginal contribution of the shareholders to the bottom line of a 25+ yo company? What is the corresponding contribution of it's workforce? Why the shareholders should have priority? Let's say I buy WalMart stock tomorrow, why should I be prioritized in the distribution of profits next year? I never gave a dime to WalMart, at best I helped the stock price a little. The folks at the warehouse though, have a measurable contribution to the performance of the company. Or in other words, why WalMart has to pay to the eternity a "loan" that it got at the IPO, and not use the money for improving the company itself with the potential to further increase its value?

betterunix2 7y ago
Actually the stockholders are last in line -- "profit" is what is left over after all the other expenses are paid. Employees are entitled to their wages as long as they are employed; stockholders are not actually entitled to anything and may never see any return on their investment. Before stockholders can be paid, a company must pay its employees, its suppliers, its taxes, its bondholders, etc. That is the risk a stockholder accepts. It is wrong to think of a stockholder as having given a "loan," because that is not what stock represents. Stock represents an ownership stake in a business, and ownership is perpetual (a perpetual loan makes no sense -- it is not a "loan" if it can never be repaid). Stock ownership is transferable for a publicly traded company, which is why someone who did not buy their stake directly from the company can be entitled to all the benefits of someone who did. This is a good thing because it reduces the risk of investing -- if you invest in a company, and later on find yourself short on cash, you can sell your shares (though it may be for less than you paid, but that's just how it goes when you own something). If the buyer of your shares were not entitled to the same benefits as you, why would they buy the shares in the first place? That is also why a company ultimately serves the interest of its shareholders -- they are the owners. That is how a capitalist system works, so if you think this is problematic then you really have a problem with capitalism. What sort of system would you like to see? Communist systems have not been nearly as successful historically (which is why there are so few remaining) and socialism has only worked well as means of supporting capitalism (e.g. providing people with food, healthcare, education, transportation, and whatnot so that they can participate in a capitalist system in a meaningful way).