From: gts (gts@optexinc.com)
Date: Wed Sep 11 2002 - 19:46:59 MDT
Profits, not dividends, are the driving force behind stock prices.
Dividends from public companies are irrelevant except in so much as they
are one means by which owners can receive some of the profits.
Consider a privately owned "mom and pop" business placed up for sale.
Such private businesses pay no dividends, yet they are valuable on the
market. The potential buyer of a private business will calculate his bid
based on the present value of the expected stream of future profits,
adjusted upward by the book-value (tangible assets minus liabilities)
and downward by the expected variance of future profits (risk).
The stockmarket is no different. A profitable company with a firm
resolve never to pay a dividend would still be valuable to potential
buyers, for the same reason that the private company above is valuable
to potential buyers.
-gts
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