4 ms·

How do stocks that never pay a dividend settle?

simonh 5y ago
Companies hold assets, cash flow and perform real world activities that have a tangible value. There are multiple ways that value can be realised. Aside from speculative investors which were discussing, companies and individuals can buy shares in order to exert strategic influence over the company for their own reasons, so the shares have a value to them beyond just the share price. For example the way Microsoft owned shares in Apple for a long time because the existence and operations of Apple at the time benefited them. Ultimately management can buy out the company, or an external player can mount a takeover, or there could be a merger, any of which can lead to a cash out situation. E.g. a software company might never pay a dividend, but the company might be bought by a company that wants to acquire it's products or customers, or it's technology team. These things have economic value that can be realised. So there are multiple ways a company can have value that can lead to share owners benefiting from the materialisation of that value.
- pishpash 5y ago
  I'm not talking about the existence of economic value, but of settlement. So there is no settlement except at an indefinite transaction event -- not even under your control if they're non-voting shares, i.e. "whenever".
  - perl4ever 5y ago
    True, it's not scheduled, but it's more common than a lot of people think, for a public company to be bought out. And the shareholders don't get to arbitrarily hold out, either.
JumpCrisscross 5y ago
> How do stocks that never pay a dividend settle? The textbook answer to stock value is dividends. Many companies, most, I would argue, never reach that point. In practice, the chief defender of fundamental value is M&A. Whole-company buyers can tap free cash flow in a way minority investors can’t. That is the arbitrage that sets a lower bound on the value of a company’s shares relative to its cash flow. (There is no similar mechanism for setting an upper bound.)
- saalweachter 5y ago
  Eh, once you start averaging across market caps and counting stock buy-backs as the back-door dividend they are, it becomes far less common. Amazon is the one big outlier there; IIGC, they've only performed a buyback once. The S&P 500 disburses ~half a trillion USD in dividends each year, and performs another ~half a trillion USD in stock buybacks. You shouldn't discount that second half.

Companies hold assets, cash flow and perform real world activities that have a tangible value. There are multiple ways that value can be realised. Aside from speculative investors which were discussing, companies and individuals can buy shares in order to exert strategic influence over the company for their own reasons, so the shares have a value to them beyond just the share price. For example the way Microsoft owned shares in Apple for a long time because the existence and operations of Apple at the time benefited them. Ultimately management can buy out the company, or an external player can mount a takeover, or there could be a merger, any of which can lead to a cash out situation. E.g. a software company might never pay a dividend, but the company might be bought by a company that wants to acquire it's products or customers, or it's technology team. These things have economic value that can be realised. So there are multiple ways a company can have value that can lead to share owners benefiting from the materialisation of that value.

pishpash 5y ago
I'm not talking about the existence of economic value, but of settlement. So there is no settlement except at an indefinite transaction event -- not even under your control if they're non-voting shares, i.e. "whenever".
- perl4ever 5y ago
  True, it's not scheduled, but it's more common than a lot of people think, for a public company to be bought out. And the shareholders don't get to arbitrarily hold out, either.

JumpCrisscross 5y ago

> How do stocks that never pay a dividend settle? The textbook answer to stock value is dividends. Many companies, most, I would argue, never reach that point. In practice, the chief defender of fundamental value is M&A. Whole-company buyers can tap free cash flow in a way minority investors can’t. That is the arbitrage that sets a lower bound on the value of a company’s shares relative to its cash flow. (There is no similar mechanism for setting an upper bound.)

saalweachter 5y ago
Eh, once you start averaging across market caps and counting stock buy-backs as the back-door dividend they are, it becomes far less common. Amazon is the one big outlier there; IIGC, they've only performed a buyback once. The S&P 500 disburses ~half a trillion USD in dividends each year, and performs another ~half a trillion USD in stock buybacks. You shouldn't discount that second half.