From: gts (gts@optexinc.com)
Date: Thu Sep 12 2002 - 08:05:12 MDT
Lee Daniel Crocker wrote:
> "Growth" is only a short-term way to earn money from stocks, and is
> not connected to company profits in any way, except indirectly though
> the expectation of dividends.
That is simply untrue, Lee. A profitable company that does not and will
not pay dividends is nevertheless valuable to another company individual
who might want to buy it to have access to its future profits. There is
no need in principle for the company ever to pay out dividends in order
to have value on the market. It makes no difference how mature that
company may be.
> Granted, the short term may be 20-30 years, but there's absolutely
> no reason for the stock to have value at all, except for the
> prospect of the company's profits going to shareholders, and the
> /only/ way that happens is through dividends.
No, shareholders also participate in profits through capital
appreciation.
As a simplified case, imagine a company whose public share price is
*only* a reflection of its assets minus its liabilities. If that figure
is positive then the company is worth that amount on the market. This so
because of the real possibility that a person or corp could buy it,
liquidate it, and pocket the value in cash. If such a company makes a
profit and only puts it in the bank then the company will grow in value
accordingly, dollar for dollar.
In actual practice market prices are determined by other factors in
addition to net assets (namely the present value of future earnings) but
the simplified example above should make clear that a company is always
worth at least its liquidation value, regardless of any prospect of
paying dividends.
-gts
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