I'm new to stock market, and I'm wondering, if final idea behind stocks is that someday you will be paid back your investment in dividends and start making profit, how long does it usually take for a stock to do so? My portfolio mostly consists of tech stocks and I noticed extremely low dividend yield compared to stock price.
1 Answer
The goal is not to get "paid back" from dividends - if you buy a stock for $100 and it pays a 1% dividend - you will get $1 in dividends and still have a stock that's worth somewhere around $100. Your profit will come from the growth of the company, not how much it pays in dividends. So in a sense it doesn't matter how long it takes you to get "paid back" since at that point if the stock is worth the same price you'll actually have doubled your investment.
Dividends are not "return" in the sense that they don't change your wealth - they just give you cash for a piece of what you already own. They decrease the value of the stock by the same amount since it's cash out the door from the company's perspective, so if the company is worth $100 per share and pays a $1 dividend, it's now worth $99 per share (all else being equal).
From the shareholder's perspective, if you have a stock worth $100 and it pays a $1 dividend, you now have $1 in cash and a stock worth $99 - so your total value has not changed.
All that to reinforce that investment growth (profit) doesn't come from dividends - it comes from the growth of the companies that you invest in.
