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So I was reading this article on 'Understanding the basics of Stock Owning' (1).

It starts by saying, Exxon has 5.28 billion shares of stock outstanding, in other words, they have divide the company into 5.28 billion pieces.

It then goes on to say, the stock is worth $90.70 per share and if you own the share you get a dividend of $1.70 a year. Finally, if the company closes or sells itself or w/e then you get ~$20 per share. Fine.


My question is, why would anyone buy this stock? Its dividend is $1.70 a year, if you bought a stock, you'd have to wait a long time for it to pay itself. Or is the idea that it's a kind of (unreliable) bond where you can invest $1,000,000 into the stocks and get a decent return every year through dividends? The price is driven by speculation on the dividend (analogous to some kind of mutable bond coupon).

This leads to my second question, why would anyone buy shares of a company that does not give out dividends? If the company closes then you only receive a fraction of what you paid for the shares, what's the incentive?


[1] http://www.thesimpledollar.com/personal-finance-101-what-exactly-does-it-mean-to-own-a-stock/

marked as duplicate by mhoran_psprep, keshlam, Dheer, Victor, MD-Tech Oct 13 '16 at 7:54

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For XOM if you were lucky enough to purchase on 20 Jan 16, at 73.18/share and sold on 15 July at 94.95 you would achieve a 29% return in six months. Awesome. You'd also get a dividend payment or two adding another percentage point per to your returns.

The one year chart for FB shows it increasing from ~95/share to ~129. Yet no dividend was paid. However, the 35.7% YTD for 2016 should make anyone happy.

Both of these require excellent timing, and those kind of returns are unsustainable over the long haul. Many people simply hold stocks. Having the dividend is a nice bonus to some growth.

Why to people buy stocks? For profit. Sometimes dividend payers offer the best option, sometimes not.

  • So the only reason other than dividends, is that people buy stocks in the hope that someone else will buy them for more? That's it?? – MathsIsHard Oct 13 '16 at 19:58
  • @MathsIsHard of course at a higher value then they original bought the stock for. – NuWin Oct 13 '16 at 20:02
  • @NuWin so the stock has very little intrinsic value, if everyone stopped trading, these stocks would be pretty much worthless right? – MathsIsHard Oct 13 '16 at 21:04
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    @MathsIsHard intrinsic/extrinsic value depends on the investor but the majority of the market is definitely investing extrinsically. And yes if no one trades the stock then there is no value thus making it worthless. – NuWin Oct 14 '16 at 3:50
  • Not entirely true, NuWin. A share of stock is partial ownership of the company. If/when the company is bought out, or at risk of being bought out, this becomes quite significant, and becomes another driver on the stock's price. But, yes, if the company has no value then the stock has no value. – keshlam Oct 15 '16 at 5:27

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