4 ms·

How does it make the shares worth more if they are not entitled to dividends?

adam_arthur 4y ago
Owning a share of Amazon gives you rights to future dividends, which in theory can be high if they continue to grow EPS. If I promise to pay you $100 10 years from now, is that agreement worthless because you didn't get it today? No you discount the time factor into current value. The people who got wiped out on growth tech don't understand this concept
- CTDOCodebases 4y ago
  I understand it. It's just that there is a lot of uncertainty. Ultimately I think that different people value things differently. To some people something is worth what someone is willing to pay them for it at the current moment. To others it's worth whatever it is in the story they have concocted in their head.
  - adam_arthur 4y ago
    If your sense of worth is derived by anything other than fundamentals, you're setting yourself up for failure. And to lose a lot of money
throwaway_1928 4y ago
Say I own 1 share of Amazon worth $10 and Amazon earns $1 on that share. Bezos has 2 options. He can pay me $1 as a dividend or he can reinvest that $1 into his business and make my share worth $11. His choice does not matter in the absence of taxes and other costs. If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1. If he does pay out a $1 dividend but I do not want a $1 dividend, I will use his $1 payout to buy 1/10th of a $10 share and now own 1.1 share. In both cases I have $11. The difference between this and crypto is that crypto has no earnings. If SBF and his coinmaker friends want to pay me $1 on my $10 ("yield farming") they must do it by taking $1 from new investors to pay me. But who will pay those new investors?
- nivertech 4y ago
  Stock buyback is also equivalent to paying cash dividend (ignoring the tax issues).
  - s1artibartfast 4y ago
    Stock buybacks have advantages relative to cash dividends for tax purposes because tax on dividend profits are taxed annually, and stock appreciation is taxed in the year of sale.
  - CTDOCodebases 4y ago
    This is a valid point. If a buyback has been announced then the share is worth at least what the company buying back the share has agreed to.
- CTDOCodebases 4y ago
  >If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1. >If he does pay out a $1 dividend but I do not want a $1 dividend, I will use his $1 payout to buy 1/10th of a $10 share and now own 1.1 share. >In both cases I have $11. If what you said was true then share prices would go up after earnings were announced by exactly the same amount of profits that were in the earnings report. In reality a company can release their report announcing their profit and the share price can decline so I think it's fair to say that a share price's value is largely based on speculation. >The difference between this and crypto is that crypto has no earnings. If SBF and his coinmaker friends want to pay me $1 on my $10 ("yield farming") they must do it by taking $1 from new investors to pay me. But who will pay those new investors? Yield can be sourced from trading/borrowing fees or in the event of liquidation the collateral that these traders provide. Yield can also be generated by performing some functions on a blockchain like validating transactions. Yield can also come from the "pre-mine" in instances where the coinmaker is offering yield farming.
  - throwaway_1928 4y ago
    > I think it's fair to say that a share price's value is largely based on speculation I agree that this is the case in the short run. But I do not believe this is the case in the long run. And there are great investors out there who hold this view. > Yield can be sourced from trading/borrowing fees or in the event of liquidation the collateral that these traders provide. Yield can also be generated by performing some functions on a blockchain like validating transactions. Yield can also come from the "pre-mine" in instances where the coinmaker is offering yield farming. You may be right. The only issue is that when someone offers you a guaranteed 12% or guaranteed 20% annual return on your money in a near 0% interest environment then it seems too good to be true. And it was too good to be true in the case of that recently collapsed 'luna' coin which wiped out 45 billion of investor money.
s1artibartfast 4y ago
Two additional points Stock buybacks are one way that is theoretically equivalent to dividends. Amazon recently announced a $10 billion buyback which is about a 1% dividend for owners. [1] Also, amazon has underlying assets worth 420 billion [2], which the the stock owners own. As Amazon grows, the assets/share also grow https://www.cnbc.com/2022/03/09/amazon-announces-20-for-1-stock-split-10-billion-buyback.html https://www.cnbc.com/2022/03/09/amazon-announces-20-for-1-st... https://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/f965e5c3-fded-45d3-bbdb-f750f156dcc9.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/f965e5c...
- CTDOCodebases 4y ago
  > Stock buybacks are one way that is theoretically equivalent to dividends. I replied elsewhere but this is the true value of something. What someone else is willing to pay for it. > Also, amazon has underlying assets worth 420 billion I always struggle with these valuations because like I said above the true value of something is what someone else will pay for it so I think they are an estimation at best. I guess companies can be taken over and broken apart for their assets like private equity firms have become known for doing so these numbers do hold some weight. Though if liabilities grow to a level where the business files for bankruptcy these numbers are irrelevant to a shareholder since they are behind the creditors. What no one mentioned here is voting rights. While the votes of small shareholders are largely inconsequential larger voters could on things that would benefit themselves financially so indirectly this can give value to shares.
  - s1artibartfast 4y ago
    >I always struggle with these valuations because like I said above the true value of something is what someone else will pay for it so I think they are an estimation at best. This is true of anything. I own a used car, it is an asset, and has an estimated value that will only be verified/or disproven if I need to go through with selling it. If a company is liquidated, share holders are indeed behind creditors in getting paid out, so they would not get this full value. It seems that you understand it fully, what exactly is the struggle you are having?

Owning a share of Amazon gives you rights to future dividends, which in theory can be high if they continue to grow EPS. If I promise to pay you $100 10 years from now, is that agreement worthless because you didn't get it today? No you discount the time factor into current value. The people who got wiped out on growth tech don't understand this concept

CTDOCodebases 4y ago
I understand it. It's just that there is a lot of uncertainty. Ultimately I think that different people value things differently. To some people something is worth what someone is willing to pay them for it at the current moment. To others it's worth whatever it is in the story they have concocted in their head.
- adam_arthur 4y ago
  If your sense of worth is derived by anything other than fundamentals, you're setting yourself up for failure. And to lose a lot of money

throwaway_1928 4y ago

Say I own 1 share of Amazon worth $10 and Amazon earns $1 on that share. Bezos has 2 options. He can pay me $1 as a dividend or he can reinvest that $1 into his business and make my share worth $11. His choice does not matter in the absence of taxes and other costs. If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1. If he does pay out a $1 dividend but I do not want a $1 dividend, I will use his $1 payout to buy 1/10th of a $10 share and now own 1.1 share. In both cases I have $11. The difference between this and crypto is that crypto has no earnings. If SBF and his coinmaker friends want to pay me $1 on my $10 ("yield farming") they must do it by taking $1 from new investors to pay me. But who will pay those new investors?

nivertech 4y ago
Stock buyback is also equivalent to paying cash dividend (ignoring the tax issues).
- s1artibartfast 4y ago
  Stock buybacks have advantages relative to cash dividends for tax purposes because tax on dividend profits are taxed annually, and stock appreciation is taxed in the year of sale.
- CTDOCodebases 4y ago
  This is a valid point. If a buyback has been announced then the share is worth at least what the company buying back the share has agreed to.
CTDOCodebases 4y ago
>If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1. >If he does pay out a $1 dividend but I do not want a $1 dividend, I will use his $1 payout to buy 1/10th of a $10 share and now own 1.1 share. >In both cases I have $11. If what you said was true then share prices would go up after earnings were announced by exactly the same amount of profits that were in the earnings report. In reality a company can release their report announcing their profit and the share price can decline so I think it's fair to say that a share price's value is largely based on speculation. >The difference between this and crypto is that crypto has no earnings. If SBF and his coinmaker friends want to pay me $1 on my $10 ("yield farming") they must do it by taking $1 from new investors to pay me. But who will pay those new investors? Yield can be sourced from trading/borrowing fees or in the event of liquidation the collateral that these traders provide. Yield can also be generated by performing some functions on a blockchain like validating transactions. Yield can also come from the "pre-mine" in instances where the coinmaker is offering yield farming.
- throwaway_1928 4y ago
  > I think it's fair to say that a share price's value is largely based on speculation I agree that this is the case in the short run. But I do not believe this is the case in the long run. And there are great investors out there who hold this view. > Yield can be sourced from trading/borrowing fees or in the event of liquidation the collateral that these traders provide. Yield can also be generated by performing some functions on a blockchain like validating transactions. Yield can also come from the "pre-mine" in instances where the coinmaker is offering yield farming. You may be right. The only issue is that when someone offers you a guaranteed 12% or guaranteed 20% annual return on your money in a near 0% interest environment then it seems too good to be true. And it was too good to be true in the case of that recently collapsed 'luna' coin which wiped out 45 billion of investor money.

s1artibartfast 4y ago

Two additional points Stock buybacks are one way that is theoretically equivalent to dividends. Amazon recently announced a $10 billion buyback which is about a 1% dividend for owners. [1] Also, amazon has underlying assets worth 420 billion [2], which the the stock owners own. As Amazon grows, the assets/share also grow https://www.cnbc.com/2022/03/09/amazon-announces-20-for-1-stock-split-10-billion-buyback.html https://www.cnbc.com/2022/03/09/amazon-announces-20-for-1-st... https://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/f965e5c3-fded-45d3-bbdb-f750f156dcc9.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/f965e5c...

CTDOCodebases 4y ago
> Stock buybacks are one way that is theoretically equivalent to dividends. I replied elsewhere but this is the true value of something. What someone else is willing to pay for it. > Also, amazon has underlying assets worth 420 billion I always struggle with these valuations because like I said above the true value of something is what someone else will pay for it so I think they are an estimation at best. I guess companies can be taken over and broken apart for their assets like private equity firms have become known for doing so these numbers do hold some weight. Though if liabilities grow to a level where the business files for bankruptcy these numbers are irrelevant to a shareholder since they are behind the creditors. What no one mentioned here is voting rights. While the votes of small shareholders are largely inconsequential larger voters could on things that would benefit themselves financially so indirectly this can give value to shares.
- s1artibartfast 4y ago
  >I always struggle with these valuations because like I said above the true value of something is what someone else will pay for it so I think they are an estimation at best. This is true of anything. I own a used car, it is an asset, and has an estimated value that will only be verified/or disproven if I need to go through with selling it. If a company is liquidated, share holders are indeed behind creditors in getting paid out, so they would not get this full value. It seems that you understand it fully, what exactly is the struggle you are having?