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The whole stock market in 2023 makes no sense to me, not just Bed Bath and Beyond. So many companies no longer pay dividends. So many classes of stock are now n

The whole stock market in 2023 makes no sense to me, not just Bed Bath and Beyond. So many companies no longer pay dividends. So many classes of stock are now non-voting shares. Common stock shareholders usually get nothing if a company goes bankrupt and liquidates. So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets, what is the actual value in owning stock? Do I just wait for the share price to go up, sell at the peak, and pass my shares on to the greater fool? That's starting to smell a lot like the worst sort of crypto trading.

itake 3y ago
My understanding is buybacks are better than dividends for tax purposes, because with dividends you pay income tax and buy packs you pay capital gains.
- HDThoreaun 3y ago
  Dividends pay the exact same tax rate as selling stock which is how you make money from buybacks. The difference is that buybacks allow you to take the income in the future and shift the tax burden timing. Both dividends and stock selling are normal income tax rate if you've held the stock for less than 6 months and capital gains rate if you've held for more.
  - malfist 3y ago
    Selling stock isn't entirely how you make money from buybacks. Buybacks inflate the stock price, making what you're holding more valuable, even if you don't sell. More valuable assets are useful for all sorts of things, including leveraging them for other activities, or selling them for capital gains.
    - HDThoreaun 3y ago
      Absolutely can get into all that, buybacks definitely are better for tax purposes, but saying "buybacks are taxed at capital gains rate and dividends are income tax rate" is not correct
    - taeric 3y ago
      For stocks that don't pay dividends, the only way you can make money from them is by selling. You are right that you can leverage them in all sorts of ways, but that isn't really what anyone means by making money. It is how you drown folks in leveraged debt that they can't pay back later, of course.
  - sbierwagen 3y ago
    LTCG threshold is one year, not six months.
  - aketchum 3y ago
    Are you sure about this? I believe you would prefer a share value increase of $1 instead of a dividend of $1, as you are taxed on dividends as income (income tax) but stock appreciation is capital gains (lower tax than income tax). This is in the context of American taxes.
    - spokesbeing 3y ago
      "Qualified dividends" are taxed the same as capital gains. To be qualified mostly depends on a minimum holding time, 60 days for common stock. https://en.m.wikipedia.org/wiki/Qualified_dividend https://en.m.wikipedia.org/wiki/Qualified_dividend
      - RC_ITR 3y ago
        You pay tax on the cash now, you choose when to pay tax on the share price increase. Money has time value.
        spokesbeing 3y ago
        Of course but that's not what the parent comment is asking clarification on. Dividends are, generally, not taxed at income tax rate if you are buy and hold. They are taxed at CG rate. A bigger downside of dividends is that you can't offset qualified dividends income with capital losses (except up to the $3000 annual limit). And compounding is different because you pay tax only at the end rather than every year. But those are different issues. While I'm at there's the additional wrinkle that being able to actually get a significant LTCG rate difference by deferring the income really depends on structure of your future income and when in your lifetime you will sell.
  - nemo44x 3y ago
    They aren't buying your shares back if you aren't selling them. The buyback makes each share worth more. You don't sell. You have something more valuable than before and now you can borrow money against it. That's the point.
- Wowfunhappy 3y ago
  But the question remains, what exactly are you buying, and how is it tied to the actions of the company? This has long confused me as well with regard to non-voting shares.
  - aketchum 3y ago
    you are buying a piece of future cash flows from that company, discounted based on risk of realizing those cash flows
    - burnished 3y ago
      The context was non voting, no dividends shares. So where is the future cash flow? Genuinely also curious.
- boring_twenties 3y ago
  With qualified dividends, you pay the LTCG rate anyway. The problem is that dividends are taxed twice: the corp pays corporate income tax on that money before it's distributed
HDThoreaun 3y ago
Companies that don't pay dividends generally do buybacks. Almost all public companies are profitable and do either dividends or buybacks.
mech987987 3y ago
When a company liquidates, bondholders are paid out before stockholders. This is to prevent moral hazard from companies going deep into debt and running off with the cash by liquidating the company.
- etothepii 3y ago
  This is not always true and depends on the structure and terms of the bond. For example in the credit suisse takeover several classes of bond were wiped out while some classes of shares were not.
genghisjahn 3y ago
Common share holders almost always get nothing if a company goes bankrupt. That's part of the risk of holding stock. See the section How Assets are Distributed in a Liquidation: https://www.investopedia.com/ask/answers/09/corporate-liquidation-unpaid-taxes-wages.asp https://www.investopedia.com/ask/answers/09/corporate-liquid...
NoboruWataya 3y ago
Others have mentioned buybacks, but the broader point is that if a company is consistently profitable, it will eventually pay dividends (or do buybacks). The board, who decide what to do with the company's money, have fiduciary obligations to the shareholders. They can hold cash reserves to cover future liabilities and they can re-invest profits in growing the business, but ultimately when the board cannot identify profitable investment opportunities, that money has to go back to the shareholders. Also, it is only in insolvent liquidations that shareholder get nothing back. If the company were to wind up while still solvent, the shareholders would get their share of its net assets. (Though I don't think this happens much with public companies.)
- Sohcahtoa82 3y ago
  > If the company were to wind up while still solvent, Has this ever happened to a publicly traded company?
  - vkou 3y ago
    Yahoo, essentially, when it disgorged its stake in AliBaba to Yahoo's shareholders.
spaceman_2020 3y ago
Everything has been fundamentally detached from reality, from stocks to housing. Houses can sit empty without tenants for years but they’ll only go up. Companies can be unprofitable for literal decades but they’ll keep finding funding and buyers. Commercial properties can bleed tenant but the prices will only be up. In a world of shrinking growth , stalling productivity, and dying demographics, the market behaves like infinite growth is baked in. It’s very clear to any observer that the markets don’t follow any rationality anymore.
- fumar 3y ago
  Does this mark an end for our society's principles? Are we do for a dark age? Are we in it or will there be an enlightenment or renaissance?
  - spaceman_2020 3y ago
    I don’t know, but it’s increasingly frustrating as an average person. Apartments around me keep appreciating in value every year, rents keep going up astronomically even when the houses stay empty. My income went up, but housing in my area went up nearly 2x. I’m being priced out of areas I’ve lived in forever. I feel like a social contract has been violated. Everything, from products to housing seems to be targeted at the “luxury” and “premium” segment. It’s like a omnipresent giant middle finger to anyone but the wealthy.
    - crooked-v 3y ago
      Housing prices keep going up in the US because, fundamentally, there's not enough housing and hasn't been enough housing built for decades [1]. In most big cities, this is a self-inflicted problem caused by bad zoning and by planning and permitting processes that can take years and add huge amounts to home prices. (This is a big part of the reason there's so much "luxury" housing; adding a superficial high-end gloss is one of the few ways to disguise the additional bureaucratic markup.) Unfortunately, a huge number of people like to blame this entirely on evil developers and evil corporations and think that merely adding more regulation on those will make the problem magically go away. [1]: https://www.cnn.com/2023/03/08/homes/housing-shortage/index.html https://www.cnn.com/2023/03/08/homes/housing-shortage/index....
Etheryte 3y ago
Stockholders are not supposed to get anything if the company they're holding goes to zero, that's not a bug, that's literally how stocks work.
- mahogany 3y ago
  This reply (and several others) is focusing on one part of the comment and ignoring the overall point. The question is: if companies are no longer giving dividends, no longer giving voting rights, and you get nothing if it goes to zero, then what, intrinsically, is the value of a stock tied to? Is it something other than "stock will go up so someone will buy it at a higher price"? How does it differ from, say, Bitcoin?
crooked-v 3y ago
> Common stock shareholders usually get nothing if a company goes bankrupt and liquidates. ...what else would you expect to happen? If a company is bankrupt, it pretty much definitionally has zero value beyond whatever its assets sell for, and those will generally go to cover debtors.
nemo44x 3y ago
> Common stock shareholders usually get nothing if a company goes bankrupt and liquidates. That's that whole risk and reward thing. Equity is often the last in line for anything when a company is in trouble. You need to pay employees, vendors, bond holders, other loans, etc first. Pretty much everyone before a share holder sees a dime. > what is the actual value in owning stock? They could pay dividends one day but dividends have fallen out of fashion because the taxes on them aren't good. So many share holders don't want dividends but rather for companies to buy back shares, making their shares more valuable. > Do I just wait for the share price to go up, sell at the peak, and pass my shares on to the greater fool? If you can do that reliably then you will be the richest person on Earth. There are many great companies worth investing in.
dragonwriter 3y ago
> So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets As a stockholder, you are entitled to a share of the remaining assets after debts are paid at dissolution. Of course, the nature of bankruptcy liquidation is that there tend not to be remaining assets.
RecycledEle 3y ago
You are correct. If we ignore trades between investors, then people buy stock, receive dividends, and one day the company goes out of business. (Nothing lasts forever.) The dividends have to exceed the purchase price (accounting for an acceptable rate of return) to justify the purchase. Without dividends, stocks are a zero-sum game where someone has to lose a dollar for every dollar someone else gains. If a stock will never earn dividends, and the company will never buy it back, then it is worthless.
blakesley 3y ago
> So many companies no longer pay dividends. So many classes of stock are now non-voting shares. This seems normal to me. (I'm in my late 30s) Dividends aside, you're saying you used to do a lot of voting and now, in 2023, you're not anymore?
RC_ITR 3y ago
>So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets, what is the actual value in owning stock? Do I just wait for the share price to go up, sell at the peak, and pass my shares on to the greater fool? That's starting to smell a lot like the worst sort of crypto trading. If they aren't paying dividends (but are profitable), then profits are either going to the balance sheet or into capital and you literally own those things. It's also difficult to grasp, but share buybacks have the same net effect as dividends (they primarily exist for tax efficiency). Oracle is a great example here. They have cut their number of share in half [0] over the past decade, while paying a relatively paltry 1.6% dividend yield. So sure, you're not swimming in cash as an owner, but many investors don't want that, they'll gladly take the effective doubling of their ownership of the balance sheet that they've been given instead. [0]https://www.macrotrends.net/stocks/charts/ORCL/oracle/shares-outstanding#:~:text=Oracle%20shares%20outstanding%20for%20the,a%208.26%25%20decline%20from%202020 https://www.macrotrends.net/stocks/charts/ORCL/oracle/shares....
subsubzero 3y ago
agree, my thesis on 2023 was for stocks to start trending down, but for some reason there was this strange bump in the stock market and then when SVB collapsed I said yup its finally coming(a healthy correction). But the fed/treasury bailed out SVB's toxic assets(non-FDIC insured) to the detriment of the broader market. I feel like the fed will do anything to prevent even the slightest failure, but bad assets/institutions need to fail. Its analogous to not removing cancerous cells and letting them spread through the body.
ubermonkey 3y ago
The "non-voting shares" thing is just SUPER bananas to me. Like, you could hold a billion dollars of META shares and have no vote. In what sense is that "ownership?" Why do people go along with it? >So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets, what is the actual value in owning stock? EXACTLY.
wintogreen74 3y ago
You can buy all the dirty, old fashioned stocks that still pay dividends like oil & gas, banking, integrated grocery, even Microsoft - at least until the activist investors push them to fundamentally change their business models.
autokad 3y ago
exactly. Most stocks are effectively over produced digital collectibles. a stock should only be worth the potential cash flows it gives you in the future. period. 'but I get a share of the assets if it goes bankrupt'. you mean nothing? share holders are last in line behind government, bond holders, other debt holders, preferred shares, and then maybe common stock. people are in some sort of 'rage' mode in gambling on assets.
calebcannon 3y ago
I think a lot of it is driven by the desire for a product/service to exist, rather than the hard nosed financial decision to “Invest.”The crazy growth of companies like beyond meat and tesla are weird to number crunching investors but retail wants electric cars and not-meat to exist because the individuals think it will improve their quality of life. You’re completely correct about those financials making no sense though.
red-iron-pine 3y ago
> So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets, what is the actual value in owning stock? Do I just wait for the share price to go up, sell at the peak, and pass my shares on to the greater fool? That's starting to smell a lot like the worst sort of crypto trading. Basically. Classy gambling at this point.

itake 3y ago

My understanding is buybacks are better than dividends for tax purposes, because with dividends you pay income tax and buy packs you pay capital gains.

HDThoreaun 3y ago
Dividends pay the exact same tax rate as selling stock which is how you make money from buybacks. The difference is that buybacks allow you to take the income in the future and shift the tax burden timing. Both dividends and stock selling are normal income tax rate if you've held the stock for less than 6 months and capital gains rate if you've held for more.
- malfist 3y ago
  Selling stock isn't entirely how you make money from buybacks. Buybacks inflate the stock price, making what you're holding more valuable, even if you don't sell. More valuable assets are useful for all sorts of things, including leveraging them for other activities, or selling them for capital gains.
  - HDThoreaun 3y ago
    Absolutely can get into all that, buybacks definitely are better for tax purposes, but saying "buybacks are taxed at capital gains rate and dividends are income tax rate" is not correct
  - taeric 3y ago
    For stocks that don't pay dividends, the only way you can make money from them is by selling. You are right that you can leverage them in all sorts of ways, but that isn't really what anyone means by making money. It is how you drown folks in leveraged debt that they can't pay back later, of course.
- sbierwagen 3y ago
  LTCG threshold is one year, not six months.
- aketchum 3y ago
  Are you sure about this? I believe you would prefer a share value increase of $1 instead of a dividend of $1, as you are taxed on dividends as income (income tax) but stock appreciation is capital gains (lower tax than income tax). This is in the context of American taxes.
  - spokesbeing 3y ago
    "Qualified dividends" are taxed the same as capital gains. To be qualified mostly depends on a minimum holding time, 60 days for common stock. https://en.m.wikipedia.org/wiki/Qualified_dividend https://en.m.wikipedia.org/wiki/Qualified_dividend
    - RC_ITR 3y ago
      You pay tax on the cash now, you choose when to pay tax on the share price increase. Money has time value.
      - spokesbeing 3y ago
        Of course but that's not what the parent comment is asking clarification on. Dividends are, generally, not taxed at income tax rate if you are buy and hold. They are taxed at CG rate. A bigger downside of dividends is that you can't offset qualified dividends income with capital losses (except up to the $3000 annual limit). And compounding is different because you pay tax only at the end rather than every year. But those are different issues. While I'm at there's the additional wrinkle that being able to actually get a significant LTCG rate difference by deferring the income really depends on structure of your future income and when in your lifetime you will sell.
- nemo44x 3y ago
  They aren't buying your shares back if you aren't selling them. The buyback makes each share worth more. You don't sell. You have something more valuable than before and now you can borrow money against it. That's the point.
Wowfunhappy 3y ago
But the question remains, what exactly are you buying, and how is it tied to the actions of the company? This has long confused me as well with regard to non-voting shares.
- aketchum 3y ago
  you are buying a piece of future cash flows from that company, discounted based on risk of realizing those cash flows
  - burnished 3y ago
    The context was non voting, no dividends shares. So where is the future cash flow? Genuinely also curious.
boring_twenties 3y ago
With qualified dividends, you pay the LTCG rate anyway. The problem is that dividends are taxed twice: the corp pays corporate income tax on that money before it's distributed

HDThoreaun 3y ago

Companies that don't pay dividends generally do buybacks. Almost all public companies are profitable and do either dividends or buybacks.

mech987987 3y ago

When a company liquidates, bondholders are paid out before stockholders. This is to prevent moral hazard from companies going deep into debt and running off with the cash by liquidating the company.

etothepii 3y ago
This is not always true and depends on the structure and terms of the bond. For example in the credit suisse takeover several classes of bond were wiped out while some classes of shares were not.

genghisjahn 3y ago

Common share holders almost always get nothing if a company goes bankrupt. That's part of the risk of holding stock. See the section How Assets are Distributed in a Liquidation: https://www.investopedia.com/ask/answers/09/corporate-liquidation-unpaid-taxes-wages.asp https://www.investopedia.com/ask/answers/09/corporate-liquid...

NoboruWataya 3y ago

Others have mentioned buybacks, but the broader point is that if a company is consistently profitable, it will eventually pay dividends (or do buybacks). The board, who decide what to do with the company's money, have fiduciary obligations to the shareholders. They can hold cash reserves to cover future liabilities and they can re-invest profits in growing the business, but ultimately when the board cannot identify profitable investment opportunities, that money has to go back to the shareholders. Also, it is only in insolvent liquidations that shareholder get nothing back. If the company were to wind up while still solvent, the shareholders would get their share of its net assets. (Though I don't think this happens much with public companies.)

Sohcahtoa82 3y ago
> If the company were to wind up while still solvent, Has this ever happened to a publicly traded company?
- vkou 3y ago
  Yahoo, essentially, when it disgorged its stake in AliBaba to Yahoo's shareholders.

spaceman_2020 3y ago

Everything has been fundamentally detached from reality, from stocks to housing. Houses can sit empty without tenants for years but they’ll only go up. Companies can be unprofitable for literal decades but they’ll keep finding funding and buyers. Commercial properties can bleed tenant but the prices will only be up. In a world of shrinking growth , stalling productivity, and dying demographics, the market behaves like infinite growth is baked in. It’s very clear to any observer that the markets don’t follow any rationality anymore.

fumar 3y ago
Does this mark an end for our society's principles? Are we do for a dark age? Are we in it or will there be an enlightenment or renaissance?
- spaceman_2020 3y ago
  I don’t know, but it’s increasingly frustrating as an average person. Apartments around me keep appreciating in value every year, rents keep going up astronomically even when the houses stay empty. My income went up, but housing in my area went up nearly 2x. I’m being priced out of areas I’ve lived in forever. I feel like a social contract has been violated. Everything, from products to housing seems to be targeted at the “luxury” and “premium” segment. It’s like a omnipresent giant middle finger to anyone but the wealthy.
  - crooked-v 3y ago
    Housing prices keep going up in the US because, fundamentally, there's not enough housing and hasn't been enough housing built for decades [1]. In most big cities, this is a self-inflicted problem caused by bad zoning and by planning and permitting processes that can take years and add huge amounts to home prices. (This is a big part of the reason there's so much "luxury" housing; adding a superficial high-end gloss is one of the few ways to disguise the additional bureaucratic markup.) Unfortunately, a huge number of people like to blame this entirely on evil developers and evil corporations and think that merely adding more regulation on those will make the problem magically go away. [1]: https://www.cnn.com/2023/03/08/homes/housing-shortage/index.html https://www.cnn.com/2023/03/08/homes/housing-shortage/index....

Etheryte 3y ago

Stockholders are not supposed to get anything if the company they're holding goes to zero, that's not a bug, that's literally how stocks work.

mahogany 3y ago
This reply (and several others) is focusing on one part of the comment and ignoring the overall point. The question is: if companies are no longer giving dividends, no longer giving voting rights, and you get nothing if it goes to zero, then what, intrinsically, is the value of a stock tied to? Is it something other than "stock will go up so someone will buy it at a higher price"? How does it differ from, say, Bitcoin?

crooked-v 3y ago

> Common stock shareholders usually get nothing if a company goes bankrupt and liquidates. ...what else would you expect to happen? If a company is bankrupt, it pretty much definitionally has zero value beyond whatever its assets sell for, and those will generally go to cover debtors.

nemo44x 3y ago

> Common stock shareholders usually get nothing if a company goes bankrupt and liquidates. That's that whole risk and reward thing. Equity is often the last in line for anything when a company is in trouble. You need to pay employees, vendors, bond holders, other loans, etc first. Pretty much everyone before a share holder sees a dime. > what is the actual value in owning stock? They could pay dividends one day but dividends have fallen out of fashion because the taxes on them aren't good. So many share holders don't want dividends but rather for companies to buy back shares, making their shares more valuable. > Do I just wait for the share price to go up, sell at the peak, and pass my shares on to the greater fool? If you can do that reliably then you will be the richest person on Earth. There are many great companies worth investing in.

dragonwriter 3y ago

> So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets As a stockholder, you are entitled to a share of the remaining assets after debts are paid at dissolution. Of course, the nature of bankruptcy liquidation is that there tend not to be remaining assets.

RecycledEle 3y ago

You are correct. If we ignore trades between investors, then people buy stock, receive dividends, and one day the company goes out of business. (Nothing lasts forever.) The dividends have to exceed the purchase price (accounting for an acceptable rate of return) to justify the purchase. Without dividends, stocks are a zero-sum game where someone has to lose a dollar for every dollar someone else gains. If a stock will never earn dividends, and the company will never buy it back, then it is worthless.

blakesley 3y ago

> So many companies no longer pay dividends. So many classes of stock are now non-voting shares. This seems normal to me. (I'm in my late 30s) Dividends aside, you're saying you used to do a lot of voting and now, in 2023, you're not anymore?

RC_ITR 3y ago

>So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets, what is the actual value in owning stock? Do I just wait for the share price to go up, sell at the peak, and pass my shares on to the greater fool? That's starting to smell a lot like the worst sort of crypto trading. If they aren't paying dividends (but are profitable), then profits are either going to the balance sheet or into capital and you literally own those things. It's also difficult to grasp, but share buybacks have the same net effect as dividends (they primarily exist for tax efficiency). Oracle is a great example here. They have cut their number of share in half [0] over the past decade, while paying a relatively paltry 1.6% dividend yield. So sure, you're not swimming in cash as an owner, but many investors don't want that, they'll gladly take the effective doubling of their ownership of the balance sheet that they've been given instead. [0]https://www.macrotrends.net/stocks/charts/ORCL/oracle/shares-outstanding#:~:text=Oracle%20shares%20outstanding%20for%20the,a%208.26%25%20decline%20from%202020 https://www.macrotrends.net/stocks/charts/ORCL/oracle/shares....

subsubzero 3y ago

agree, my thesis on 2023 was for stocks to start trending down, but for some reason there was this strange bump in the stock market and then when SVB collapsed I said yup its finally coming(a healthy correction). But the fed/treasury bailed out SVB's toxic assets(non-FDIC insured) to the detriment of the broader market. I feel like the fed will do anything to prevent even the slightest failure, but bad assets/institutions need to fail. Its analogous to not removing cancerous cells and letting them spread through the body.

ubermonkey 3y ago

The "non-voting shares" thing is just SUPER bananas to me. Like, you could hold a billion dollars of META shares and have no vote. In what sense is that "ownership?" Why do people go along with it? >So if I don't get dividends, can't vote, and am not entitled to a share of the company's assets, what is the actual value in owning stock? EXACTLY.

wintogreen74 3y ago

You can buy all the dirty, old fashioned stocks that still pay dividends like oil & gas, banking, integrated grocery, even Microsoft - at least until the activist investors push them to fundamentally change their business models.

autokad 3y ago

exactly. Most stocks are effectively over produced digital collectibles. a stock should only be worth the potential cash flows it gives you in the future. period. 'but I get a share of the assets if it goes bankrupt'. you mean nothing? share holders are last in line behind government, bond holders, other debt holders, preferred shares, and then maybe common stock. people are in some sort of 'rage' mode in gambling on assets.

calebcannon 3y ago

I think a lot of it is driven by the desire for a product/service to exist, rather than the hard nosed financial decision to “Invest.”The crazy growth of companies like beyond meat and tesla are weird to number crunching investors but retail wants electric cars and not-meat to exist because the individuals think it will improve their quality of life. You’re completely correct about those financials making no sense though.

red-iron-pine 3y ago