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I’m sitting back doing some self-reflection (procrastination) when I start thinking about stocks. My basic understanding of stocks is that the owner ship of company is split up between owners of any class of shares (relative “power” of share determined by the shareholders agreement).

I can understand that if ever another entity is able acquire more than [insert percentage] of shares then they now control the company. I can understand a person wanting to share in the profits of the company and buys a share that pays dividends.

My curious question is why anyone not wanting to guide a company would buy shares in a company if those shares don’t pay dividends?

The only answer my brain came up with, which I hope is wrong. Is that the only reason to buy a share without dividends is the “gamble”. I equate the level of gambling to that of poker and not lotto numbers. Skill (example: ability to read and understand a company’s quarterly report) does influence outcome greatly but in the end it is still just a gamble (The McAmazon Apple Company comes out a minute after you made a purchase and says that they’ve fired every employee and will be replacing them with imaginary Umpa lumpas… … Gamble lost).

This gamble makes a lot of sense where over time skillful and knowledgeable people profit over the ones who only think themselves to be skillful and knowledgeable. This like poker makes a medium where people can make a living off the mistakes of others.

I understand that this (gamble) is a part of the stock market and I’m not saying it is good or bad (I really don’t care) I’m just curious if there is a reason other than the gamble to own a stock with no dividends (Note: not planning a hostile takeover or ever casting a vote)

I know this questions seems very vague and broad but I'm 80% sure I'm going to get a straight up "No. People only trade dividendless stocks with the hope of making a profitable trade nothing else." I ask because I am not 100% sure and I hope that someone will show me something new.

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  • What is it about receiving a dividend that you think is so special? It doesn't provide Total Return unless there is share price appreciation which is exactly the same as what's needed when "People only trade dividendless stocks with the hope of making a profitable trade nothing else."
    – Bob Baerker
    Mar 25, 2019 at 19:00
  • I understand that the value of a stock is tied to the value of a company. I'm asking about motivation to purchase/own stocks.
    – Tolure
    Mar 25, 2019 at 19:00
  • @Bob Baerker. I realized that after you staid "doesn't provide total return" that you are right. This is just another marketing material to convince some to buy stock A and not stock B. In the end it doesn't matter what is attached to the stock. The gamble is just that it goes the direction your gambling on.
    – Tolure
    Mar 25, 2019 at 19:11
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    The reason to buy a stock is that it is growing earnings which leads to share price appreciation. If it pays a dividend, fine. If not, no big deal. The dividend itself isn't causal. Reinvested dividends will provide positive or negative compounding, depending on the direction of share price.
    – Bob Baerker
    Mar 25, 2019 at 19:47
  • If a stock gives me a dividend, I pay capital gains taxes on that dividend and can only re-invest a fraction of it. If the company re-invests the profits, it can re-invest 100% of it. The better question is why companies do dividends at all! Shouldn't their investors prefer to have the company invest 100% of its profits?
    – David Schwartz
    Mar 26, 2019 at 19:23

1 Answer 1

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In a nutshell, companies can chose to reinvest their profits and grow, or pay them to you (or a mix, of course).
Both approaches can result in significant gains for you - if they reinvest, their shares can grow significantly (look at Google or Microsoft), if they payout, their shares will gain less, but you get the dividends.

Either way, there is a risk (they could always stop paying dividends). The first is called 'Growth'; the second 'Value'. You can pick either one (or a mix) for your investments, according to your personal preference, and their is no obvious better.

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  • When you say "... they reinvest, their shares can grow ... " Do you mean a buy back shares program? Where they just execute a buy order on x number of their shares at market price (causing the increase in share price you mentioned) or does reinvest do something else to increase the value of the shares?
    – Tolure
    Mar 25, 2019 at 18:58
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    reinvest means reinvesting in the company - buying assets to increase output, R&D to generate new products, etc.
    – D Stanley
    Mar 25, 2019 at 19:27

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