Is there any reason aside from speculation that a person would buy stock in an established company that doesn’t pay dividends?
I mean, if its a growth company, then you expect all the profits to go into growing the business and not recieve dividends yet, but its the companys out of the “growth” stage and still doesn’t pay dividends, thens there no logical reason to buy the stock…
“A stocks value is entirely the value of future dividends, or the liquidation value of the company.”
As a corollary, long after a company has made its IPO and has no plans for a secondary, why does a company care what its stock price is?
I am curious where you found the quote “A stock’s value is entirely the value of future dividends, or the liquidation value of the company” because I think you’ll find that this is only true for privately held companies, not publicly traded firms.
Lots of people make lots of money every day by following the classic dictum of “buy low, sell high”, flying in the face of your question.
Consider: If I bought 200 shares of Google stock at $175/share and held onto it until it broke $350/share, then sold it, I’d have made a cool $35,000 profit. (well, to be fair, there’d be capital gains tax, transaction fees, etc, but still, even if I could only hold on to 70% of that value increase, it’s still be a cool $24,500 profit at the end of the day).
As far as modern investors go, dividends are an incentive to hold on to stock, but that’s only relevant for long-term investors. Lots of investors and fund managers “flip” stocks on an hourly or daily basis, preferring to play the market much more actively.
Further, many investors have their accounts set up so that any dividends paid are immediately reinvested in the company, so even if Google paid $5/share dividends, say, that 200 shares would actually generate dividends that could buy a few more shares rather than generate a check to the stockholder.
In terms of why a company cares about the value of its stock, well, back in Business School we learned that the #1 job of a corporation is to increase shareholder value, so there’s no question in my mind that there’s no way to ascertain the performance of a CEO without evaluating the stock price over time.
More generally, companies can always issue more stock if they need to raise money, a process that’s pretty easy for a public firm. The only issue there is to ensure that they don’t end up diluting their overall stock pool and end up with overly cheap share prices. But Google could do that, for example, issuing another major round of stock which would generate more cash for the company (they’re trading paper they’ve printed up (virtually, at least) for the price that shareholders would pay to own it).
There’s a dilution effect, of course, if the company goes from having 10,000 shares to 20,000 shares (each share is worth 1/2 of what it was prior to the new stock being issued) but the net value of the company goes up (that is, stock * share price) and hopefully the company grows, so it ends up with more shares outstanding at the previous price, or higher. It’s a win for everyone: companies grow or they stagnate and die.
A fascinating question, but I fear you misunderstand how the market works or are looking at privately held companies where there’s no-one else to buy the stock…