From: Lee Daniel Crocker (lee@piclab.com)
Date: Wed Sep 11 2002 - 20:17:06 MDT
> (gts <gts@optexinc.com>):
> 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.
Bzzzt. Thank you for playing.
You're comparing apples and oranges here: dividends are the /means/
by which /publicly owned/ companies distribute profits to their owners.
If they only made profits and kept them in the bank, there'd be no
reason to own the stock. A privately held small business distributes
profits directly because they basically have only one shareholder who
owns the company's bank account. The directors of a publicly held
company /cannot/ take profits directly. They have a legal fiduciary
responsibility to manage the company's assets on behalf of the
shareholders, for their benefit, and to distribute its profits to
them as dividends (eventually).
-- Lee Daniel Crocker <lee@piclab.com> <http://www.piclab.com/lee/> "All inventions or works of authorship original to me, herein and past, are placed irrevocably in the public domain, and may be used or modified for any purpose, without permission, attribution, or notification."--LDC
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