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Of course hoarding cash is inefficient, I was simply making a point. And I never got into the tax inefficiencies of dividends, so I'm not sure where that's coming from.
I have nothing against dividends per se. Sometimes it makes perfect sense for companies to pay them, and from the shareholders standpoint, receiving dividends isn't necessarily a bad thing either, we all know that. I'm just arguing against the idea that dividends are always the ultimate goal for investors, or that "you want every company to pay you a dividend or you would never invest in them," as you put it.
Dividends are ultimately the goal for investors in general-maybe not a single specific investor, but the general population of investors.
Look at it this way: if I tried to sell you stock A, and part of stock A's charter is it will never, ever, ever pay dividends, and you don't think it will ever change that policy, how much would you give me for that stock?
Probably nothing. Because you, and anyone who might ever buy the stock from you, will never get their invested money back.
Dividends are ultimately the goal for investors in general-maybe not a single specific investor, but the general population of investors.
Look at it this way: if I tried to sell you stock A, and part of stock A's charter is it will never, ever, ever pay dividends, and you don't think it will ever change that policy, how much would you give me for that stock?
Probably nothing. Because you, and anyone who might ever buy the stock from you, will never get their invested money back.
The value of a stock is the expected stream of future cash flows. To *someone*, if not to you. *Sometime*, even if not now.
If there are *never* dividends expected, ever, the expected future cash flows are 0.
I think you are in over your head here. im not exactly sure who you have been talking to but companies that don't pay dividends do have value. you are just not going to be able to use a formula that requires a dividend in order to calculate it.
Dividends are ultimately the goal for investors in general-maybe not a single specific investor, but the general population of investors.
Look at it this way: if I tried to sell you stock A, and part of stock A's charter is it will never, ever, ever pay dividends, and you don't think it will ever change that policy, how much would you give me for that stock?
Probably nothing. Because you, and anyone who might ever buy the stock from you, will never get their invested money back.
this is totally false. dividends are a byproduct of the appreciation of a stock. it is like i said above the company is liquidating a piece of the share price and giving it to you.
with or without that payment the value of the stock is the same. a 10.00 buck share prce that becomes 9.50 at the start of the new quarter and a .50 cent dividend is still 10 bucks whether they distribute that .50 cents or not.
Last edited by mathjak107; 01-10-2015 at 03:03 PM..
Now I buy stocks with a dividend, so if they go down, at least I get some dividend income while I wait for the stock to move back up.
The research shows that most people are really bad at picking stocks and you do not appear to be the exception. That's why you should probably just buy a balanced mutual fund (mix of stocks and bonds) like Vanguard Wellington or Vanguard Balanced Index (owns shares all the stocks on the US stock market and all the shares of investment grade bonds..kept constant at 60% stocks & 40% bonds)
One of the pitfalls of newbie investors is their tendency to pick individual stocks, despite the fact that reams of research have demonstrated that investing in individual stocks isn’t a solid strategy.
In your opinion what should a fully mature company do with its profits? Should Walmart just try to open as many stores as possible?
You are absolutely right. You do get it when you sell it. But the point is the only reason people are going to buy your share from you are for 1 of 2 reasons. 1. They think the company still has good growth prospects which will eventually translate to even greater earnings in the future or 2. The company has great earnings now with small growth ahead and is returning some of the earnings to shareholders.
Your entire argument rests on the possibility of infinite efficient growth in a company. If you can find a company that promises to grow its top and bottom lines by 8-10% forever please let me know. I would be more than happy to invest.
This discussion gets tricky when you own shares of a fund that consistently kicks out mature companies and buys fast growing companies and I think that is where the breakdown is happening. One side only cares about capital appreciation in their fund and the other is talking about the actual theory of investing in a business. Mutual funds have made it very easy to forget what investing really is which is why I would really suggest that everyone reads The Intelligent Investor by Benjamin Graham (Warren Buffett's mentor).
a fully mature company that can't find anything better to do with its cash can return it to investors .
but if growth is your goal unless that company still meets your goals perhaps that company outlived its usefullness as a growth vehicle.
many like myself are no longer interested in maximizing growth now that we are going from our accumulation stage to decumulation in retirement.
the stability ,lower volatility and ability to keep me ahead of inflation is what is important.
my portfolio is about 90% large cap right now in various funds . some holdings pay dividends ,some don't. i don't really care if i get a dividend or not, in fact tax wise i wish i didn't but as long as they meet my goals however they do it is fine.
but like i said if they can't compound all my money as the growth engine they once were and they need to return some to me than if i was a growth investor i would likely pass on them or make them only a small part of my portfolio..
In your opinion what should a fully mature company do with its profits? Should Walmart just try to open as many stores as possible?
well, if there are no longer any growth prospects; then i probably don't want to own it. but ill give it more thought. in reality, we are probably looking at utilities not businesses like walmart. i think walmart still has an obligation to keep opening stores.
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