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the problem is you are thinking of a dividend as interest . it is not like interest .
interest means you have a dollar , loan it out and if you get 5% interest it gets added to the dollar.
so you have 1.05
a dividend is the company refunding you a piece of the current share price because they feel they can't effectively grow all the money they have.
so if you have a dollar in the investment they give you back 5% . now you have 5 cents in pocket to spend or invest elsewhere and .95 cents left in the stock.
if you choose to invest back in the same company then you give them back a nickle and they give you a piece of your share and now you have your full dollar back in the investment.
next quarter the stock price rises to 1.05 . so they give you back 5 cents and now you have a dollar invested or if reinvested 1.05.
all that is happening is they offer a piece of your share price back to you and you can aye or nay it either keeping the same value working for you if you reinvest it back or less money if you pocket it.
the gains come from the stock appreciating in share price just like any other stock. they just are offering you a piece of that gain back without you selling it on your own.
the idea of a dividend is it is supposed to signify financial health.
hey i got so much money i don't need here take some back.
but just paying a dividend does not really mean that , as companies are afraid to cut when they are doing poorly as investors will sell .
a rising dividend is a very good sign of health . it is saying not only can i pay a dividend but we are making more money too so i can give back more.
investors like that so they tended to bid those share prices higher . in all cases it is the rise in share price that gives you your profit.
Ok I am starting to understand. Before I was thinking like this:
You start a business, put money in its bank account, and that is almost like you loaning your own company the money forever. At some point, you want reap back what you put in and more. And most of that should come from the profits the business makes directly off the consumer.
I guess in a Wall street stock company, it is different because you are not buying ownership from the company but from the other owners.
But then that gets me thinking, it seems like the stock market is kind of ponzi-ish. Again what is the point of owning the stock, if only so you can sell to someone who is banking on the price to go up and someone else willing to pay it?
But then that gets me thinking, it seems like the stock market is kind of ponzi-ish. Again what is the point of owning the stock, if only so you can sell to someone who is banking on the price to go up and someone else willing to pay it?
Now you've got a handle on it! You buy the stock from someone who doesn't want it with the hope that you will be able to resell it to someone else at a profit to you.
Ok I am starting to understand. Before I was thinking like this:
You start a business, put money in its bank account, and that is almost like you loaning your own company the money forever. At some point, you want reap back what you put in and more. And most of that should come from the profits the business makes directly off the consumer.
I guess in a Wall street stock company, it is different because you are not buying ownership from the company but from the other owners.
But then that gets me thinking, it seems like the stock market is kind of ponzi-ish. Again what is the point of owning the stock, if only so you can sell to someone who is banking on the price to go up and someone else willing to pay it?
what is the point of buying any investment then ? are not collectibles , commodities , art , etc bought with the idea of selling them to someone else who desires to own them more ?
in fact my whole business as a wholesaler is i buy a box and i sell a box to someone for more than i paid for the box.
what is the point of buying any investment then ? are not collectibles , commodities , art , etc bought with the idea of selling them to someone else who desires to own them more ?
in fact my whole business as a wholesaler is i buy a box and i sell a box to someone for more than i paid for the box.
The box has a usefulness to it though. You can carry things in it. That is the value, and its end use. A commodity, you can either make it into something useful, or you can eat it. An artwork can give one aesthetic pleasure. What is the end use of a stock other then someone may be willing to bet that someone later on will be willing to pay even more money for it?
The box has a usefulness to it though. You can carry things in it. That is the value, and its end use. A commodity, you can either make it into something useful, or you can eat it. An artwork can give one aesthetic pleasure. What is the end use of a stock other then someone may be willing to bet that someone later on will be willing to pay even more money for it?
Most people aren't buying commodities for their actual physical use.
The box has a usefulness to it though. You can carry things in it. That is the value, and its end use. A commodity, you can either make it into something useful, or you can eat it. An artwork can give one aesthetic pleasure. What is the end use of a stock other then someone may be willing to bet that someone later on will be willing to pay even more money for it?
It is also a share of ownership in the company. Although further down the list a shareholder of common stock is entitled to assets owned by the business at the time of liquidation.
You start a business, put money in its bank account, and that is almost like you loaning your own company the money forever. At some point, you want reap back what you put in and more. And most of that should come from the profits the business makes directly off the consumer.
Actually, you have it right.
Most people don't wait that long, and can't fathom waiting that long. They see the buying and reselling as the way to make the money.
That is a perfectly valid way to go about it and a perfectly valid viewpoint. But if you hold a dividend-paying stock long enough, you will eventually make back more than you put in-even considering inflation. That's another valid way to get your return back.
Without that ultimate return, either through dividends, or other people or businesses being willing to pay you for the shares (possibly including the company itself liquidating assets it's gathered along the way), then owning a stock ('loaning' the money) would be completely worthless.
Over a fifty-hundred year period? Including splits? You absolutely sure about your statement there?
Dollars used to buy a share of AT&T in 1984 - $4.62, would be worth $10.62 today.
Dividends over the same period on that initial share would be over $66.80. I didn't even calculate inflation on those dollars.
The worth of an investment ultimately is the sum of future expected cash flows adjusted to net present value. The fact most people are focused on the future stock price as a way to make more than inflation back doesn't change the fact that dividend flow is a perfectly valid way to get more than that current value back, either. It takes a lot of time. But it can, indeed, work.
Last edited by GeorgiaTransplant; 06-30-2015 at 08:46 PM..
Over a fifty-hundred year period? Including splits? You absolutely sure about your statement there?
Yes I'm sure, dividend payers can decline and even go bankrupt.
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