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Do companies like Uber, Tesla, etc ever intend to pay dividends? If a stock never intends to pay dividends, the value of the stock is simply the price the next
by theturtletalks 4mo ago
Do companies like Uber, Tesla, etc ever intend to pay dividends? If a stock never intends to pay dividends, the value of the stock is simply the price the next shumck is willing to pay.
- runako 4mo agoExcellent question. They may not intend, today, to pay dividends. However, the same question could have been asked about the successful tech companies of the '00s. Companies don't like to start paying dividends until they are fairly certain of their future profit stream and therefore ability to continue paying (and increasing) the dividends in the future. Apple, Oracle, Nvidia, Cisco, Alphabet, Meta, Salesforce, and Qualcomm all pay dividends now. It's not unreasonable to expect Uber and Tesla to pay in the future. However, the median time after IPO for similar companies to pay a dividend is close to 20 years. So we could expect Uber to perhaps wfstart paying sometime around 2039. Tesla...is Tesla so who knows?
- missedthecue 4mo agoThe value of the stock is your share in the underlying business. Because underlying business changes over time (hopefully for the better) you are not simply hoping another shmuck pays you more, like with tulips, whose underlying value does not change with time. You own a portion of a concern that is improving its own fortunes. Furthermore, dividends are approved by the board once per quarter or once per year. A dividend on a stock is not a contractual guarantee like it is on a bond. Therefore, it cannot be a basis of value. With your logic, Berkshire Hathaway is a long-running greater-fool tulip bubble whose shares are only bidded up by finding more shmucks.
- nestes 4mo agoWell, the value of the stock for people who essentially do not have any meaningful control of the business must essentially be tied to the expectation of some liquidity event down the line -- future cash flows. So this could come in the form of dividends, sale of the stock, bankruptcy proceedings, or a purchase of the business. If I knew for certain (big if) that a business would never have a liquidity event and I couldn't transfer my ownership then it's dead capital for all intents and purposes and you could consider its value essentially $0, right?
- kjshsh123 4mo agoBut you can transfer your ownership.
- sebastos 4mo agoAnd you can sell your tulip. But if the mania stopped and you suddenly _couldn’t_ find another person to sell it to, would you now be upset you paid $5000 for a tulip? What’s the value at which you wouldn’t be upset? Ok, that’s the intrinsic value of a tulip to you.
- runako 4mo agoThe thing about a profitable business that is different from a tulip is that it can at any point decide to issue a one-time or ongoing dividend. It can sell off parts to create cash. It has lots of optionality. Public companies have even more liquidity, which creates more optionality. Even if you don't have immediate liquidity, it would obviously be worth something to have a slice of e.g. Rolex SA. That's obviously different than owning a tulip.
- cavemandaveman 4mo agoBerkshire Hathaway doesn't pay a dividend yet the business has steadily grown more valuable
- WarmWash 4mo agoBecause dividends are stupid and Berkshire is smart. Share buybacks are the optimal way to do "dividends". The only reason to do a dividend is because people like the feels of getting a cash payout.
- throwaway2037 4mo agoI disagree with the last statement. The reason why most companies in the US have at least a nominal (one penny per share) dividend is that many pension funds have a requirement to only hold shares that issue dividends. Pension funds are all tax sheltered, so they don't need to worry about paying taxes on dividends. For retail investors, dividends are mostly worse that share buy backs. Why? Dividends are taxed, and the money needs to be reinvested.
- sebastos 4mo agoThat’s the story, but it’s bullshit. The underlying intrinsic value of a stock can only be materialized if the company liquidates and you receive a share of the sell off of its assets. How many publicly traded companies abruptly decide they’re tired of the business, stop in their tracks, and liquidate their assets? This only really happens if the company is acquired or if it goes bankrupt. Acquisition is the closest the story comes to truth, but it’s also just forced sale to a greater shmuck. If a company goes bankrupt, a tiny fraction of the current stock price would be realized into cash for common investors because of all the privileged investors and lenders ahead of them, not to mention that the actual value of capital assets etc probably doesn’t cover all the losses (the company’s going bankrupt after all). The value of the underlying capital assets are essentially never returned to the common investors, and the idea that you own a portion of them is in practical terms a lie.
- hattmall 4mo agoIt's not purely the liquidation value, it's the idea that the liquidation value will continue to increase, or profits will be paid out to owners.
- sebastos 4mo agoYes, the profits it pays out are the one thing that actually makes sense, but the premise of the grandparent post was to ask what a share is worth _without_ dividends. And the answer is that shares are intrinsically worth very little. Liquidation value (actual liquidation - bankruptcy or going out of business or an exchange closure) is rarely ever practically realized for common investors. Even if you’re trading on the discounted expectation of a larger liquidation pie, nearly 0% is still nearly 0%. Voting rights are also not valuable by themselves - they are only useful to steer the company towards greater future payouts, which means you are appealing to some other entitlement to value. If you zoom out, a company is a temporary arrangement of people and things that makes more money than it spends _over time_. They are not really designed to accumulate and store value in and of themselves. The machines the employees use to do the work is a small fraction of the overall utility of a living breathing business. The valuable part is the capacity of this techno-social organism to reliably and continuously make profit, which is far greater than the sum of its parts. So if the profit that’s being earned is never paid out to stakeholders, then there’s no point in being a stakeholder. If the profit is redirected to make the organism bigger, then you are trading now-dollars for future-dollars which must be appropriately discounted. If everyone expects a company to do this forever, then the correct price is what the expected liquidation share should be, and that number is basically zero. Yet, stocks that do not pay dividends exist at high valuations. What that tells you is that modern day stock trading is tulips: the lion’s share of the value derives from a temporarily stable, shared, _correct_ perception that someone else will buy it back from you. The reality is that general investors are the greater fools in this arrangement. The prevalence of preferred stock is a tell that there are owners and there are “owners”. What we should do is recognize this and admit that the big initial investors and employees themselves are the owners, because they are the group small enough to actually realize liquidation value (should it ever be necessary). The public investors have no realistic claim on that value, so their shares should be more clearly labeled as dividend rights, which would cause them to be priced as such.
- ozgrakkurt 4mo agoThis makes no sense. Why doesn’t the “underlying value” of tulips change? “Underlying value” is a meaningless word btw
- bitpush 4mo agoThings don't have any inherent value. It is priced at a level that a buyer thinks it is worth. A gallon of oil can be $3 or $6 depending on whether someone is willing to pay. It can also be $10 but only if people are willing to buy it at $10 if not "prices will come down to match the demand" - another way of saying it would be $9..$8...$7...$6 until it matches a buyer at which point gas is $6.
- ozgrakkurt 4mo agoThis is what I am trying to express. There is no "inherent price" or "inherent value" there is only the real value that it is bought at (in terms of money). There can be other values (non money) like if someone is willing to swap something for it etc.
- missedthecue 4mo agoThe underlying value of a tulip is the same as it was in 2000 and 2026. The underlying value of Google is much different in that same time frame.
- ozgrakkurt 4mo agoThere is no underlying value. It is only how much other people are willing to exchange for it. So stock marked is always meaningless except considering it is so large and consequanetial and so many people have access to it that it will be rational automagically. This is more of a belief that seems to be fairly correct than a rational line of thinking. This is similar to Democracy in a way
- missedthecue 4mo agoYou seem to be operating on the assumption that stock values are just totally and completely random and the fact that Google is worth $4T is just as much of a possibility as Hertz Rental Car being worth $1.5B If you disagree with the above framing, your reasoning will have to concede the existence of underlying value. Yes, obviously the price of a share is the result of the bid and the ask price in the order book. But those prices are based on something, they are not randomly generated. They are based on conceptions of value. The fact that companies with increasing free cash flow over long periods of time always see increasing share prices over time is not random coincidence.
- dingaling 4mo ago> The value of the stock is your share in the underlying business. Which for most investors with Class C/D shares is... the square root of zero. They assert no control over the business, the only way to benefit from the stock is to find another shmuck to buy it at a higher price.
- runako 4mo agoThe price of a growing business should go up because it has more options to create returns for shareholders. Use Aldi (revenue ~$120B) as an example. Do you think a person would be a shmuck to buy a slice of it now versus when revenue was $1 million? If not, why not? Your answer will help understand why stock has value even without voting control or dividends.
- dragandj 4mo agoIt depends. What if Aldi bled a trillion dollars for this revenue of $120B? Would it be a desirable purchase?
- throwaway2037 4mo agoGoogle and Meta have a reasonably similar corporate structure. Most of the voting power is concetrated in the hands of a few. They have both done very well since their IPOs. Do you exclude these companies from your portfolio?
- jnwatson 4mo agoAmong the oldest value models, the Dividend Discount Model, says that the value of a company's stock is based on the present value of its future dividend payments. Even if a company doesn't currently pay dividends, it will eventually do so or be purchased by a company that does. That's the theory at least.
- throwaway2037 4mo agoAs someone who has been looking at equity "value models" for more than 15 years, I can confidently say it is all bullshit. None of them can explain ("predict") price to earnings ratio or price to book value ratio. Sentiment matters much more in equities than any analyst will admit.
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- marcosdumay 4mo agoUS companies normally do stock buy-backs instead. It is a way to distribute the money to the investors, that their tax system favors.
- krupan 4mo agoThere are lots of US companies that pay dividends. Another commentor lists some tech companies that do, and there are lots of other types of businesses that do. A quick internet search will give you a list. You are correct that stock buybacks are another way that companies reward their shareholders.
- bottlepalm 4mo agoNot really, the company reinvests the dividends, increasing the value of the company/stock. The big difference is you pay taxes of dividends - you don't pay taxes on the stock going up year over year. Unrealized gains compound much faster than realized ones.