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So, if hypothetically you could guarantee and prove somehow that a company would never pay dividends even with a new board, then there would no longer be a reas
by Xcelerate 6y ago
So, if hypothetically you could guarantee and prove somehow that a company would never pay dividends even with a new board, then there would no longer be a reason for the stock price to move, right? People are basically betting on the fact that a company that doesn't pay dividends will change their mind at some point?
- WrtCdEvrydy 6y agoStock holders are in control of the board. Either dividends are paid constantly or eventually stock holders can force a new more dividend-friendly board.
- robjan 6y agoYou still possess a right to a portion of the company which has an underlying value. The company is then essentially a store of value, just like my gold ETF. I have no right to access the gold directly but it has value because of the underlying.
- jfengel 6y agoThe company could also be bought out, which has the same effect. In a simplified case, imagine that the company had simply stuffed all of its profits in a mattress. A buyer will have to offer stockholders at least as much money as is in that mattress. The price of that stock is never going to be as simple to calculate as the price of the mattress, because of uncertainties in future revenue. In theory a company consisting just of a mattress would have a true fixed price that never changes, but there isn't any such company. The closest you get is a "blue chip" stock, very large and very consistent in its revenue, often in manufacturing (because there's less innovation and high barrier to entry). Their prices indeed don't change much.