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It doesn't matter what the dividends are today. A rational stock valuation is the NPV of all future dividends. There must be a guarantee that dividends will b
by jcampbell1 15y ago
It doesn't matter what the dividends are today. A rational stock valuation is the NPV of all future dividends. There must be a guarantee that dividends will be paid equally, otherwise there would be no rational way to price the class C stock.
In short, the class C stock must have identical dividends to the other classes.
- adrianbg 15y agoI have longstanding confusion on this subject. What if dividends are never paid? To my layman's intuition it seems like a more sensible basis for stock valuation is as a fraction of the value of the entire company. This is only equivalent to your definition if profit is equivalent to dividends.. right?
- coopdog 15y agoIf they were never paid one day either the company finally dies or it gets wound up. On wind up day, assuming the company was profitable there'd be one huge pay out (ie dividend) More realistically if you look at Microsoft and Apple, they were trying to never pay dividends, but they finally just had so much cash it was the only sensible thing to do
- adrianbg 15y agoI don't agree. A company can never pay dividends then be bought out by a company that also never pays dividends. I'm thinking now that there are two components to a stock's value: a concrete component, since a share represents a part of the company, and a volatile abstract component depending on the amount of market demand for it at the moment (eg. in case of a hostile takeover).
- sopooneo 15y agoI have been looking for this answer since I first heard about the idea of stock as a kid. No one else could ever provide it. Thank you. "A rational stock valuation is the NPV of all future dividends"
- dpark 15y agoDon't get too wrapped up in that answer. It assumes that investors are rational and able to see the future, when they are neither. Stock value is based on the same thing as everything else: what someone else will pay. Stock prices are no more rational than home prices.
- jcampbell1 15y agoFalse. There is plenty of dispute about the NPV of all future dividends and the discount rate, but the notion is a fundamental truth. It is follows from basic math and is provable.
- joshu 15y agoindeed. pretty much all the points arguing with you are actually just discussing ways to value npv.
- dpark 15y agoOkay, but that's not what he's claiming. He's claiming that NPV is derived exclusively (and rationally, and perhaps clairvoyantly) from the future sum of dividends.
- joshu 15y agoThe value of the stock is the current estimation of that npv. How it is estimated is irrelevant. It is the group estimation across all buyers and sellers.
- dpark 15y agoI feel like you're taking part in some unrelated discussion. This entire discussion started because jcampbell claimed that NPV was derived from the sum of future dividends. (Actually, he claimed that stock price was NPV of those future dividends.) No one here seems to be disputing that stock has a NPV. They're disputing jcampbell's claim that NPV is derived exclusively from future dividends. You're arguing against a claim that no one is making.
- dpark 15y ago> A rational stock valuation is the NPV of all future dividends. Investors are not rational. Nor are they able to see the future. Future dividends have next to nothing to do with the present price of GOOG. > There must be a guarantee that dividends will be paid equally, otherwise there would be no rational way to price the class C stock What kind of guarantee would you imagine is meaningful in a world where 3 people control all decisions? If they promise today that dividends will be equally split, what stops them from tomorrow saying that class C gets no dividends?
- jcampbell1 15y ago> Investors are not rational. Nor are they able to see the future. Future dividends have next to nothing to do with the present price of GOOG. Blah, blah, blah. Let's assume google issued a share that had 1/10 dividend rights and 1/10 voting rights. What would the value of the share be? A share of stock confers two things. Voting rights, and dividend rights. That is what people are buying. Voting, and dividends. > If they promise today that dividends will be equally split, what stops them from tomorrow saying that class C gets no dividends? bylaws
- Drbble 15y agoYou should check how much dividend the former shareholders of Instagram or Plumtree received.
- dpark 15y ago> Let's assume google issued a share that had 1/10 dividend rights and 1/10 voting rights. What would the value of the share be? A lot more than 1/10 of a standard share, because dividends and voting rights are not the only things of value with respect to a company. In particular, there's also the potential for acquisitions and mergers. > A share of stock confers two things. Voting rights, and dividend rights. That is what people are buying. Voting, and dividends. A share of stock confers partial ownership of the company. That's what it confers. It might come with voting rights (or not), and it might come with dividend rights (or not). Are you actually operating under the belief that the new class of Google will have zero value unless Google eventually issues dividends? > bylaws You mean the bylaws that Larry, Eric, and Sergey can change due to their supermajority voting control?