From: Wei Dai (weidai@eskimo.com)
Date: Wed Sep 11 2002 - 18:19:55 MDT
On Mon, Sep 09, 2002 at 08:07:52PM -0400, CurtAdams@aol.com wrote:
> In the end, the stock is only worth the dividends it pays out. The dividends
> might not show up until the relatively distant future, though. The assumption
> behind these no-dividend companies is that someday, somehow, it'll pay
> a larger dividend out to somebody. In many cases the idea is that somebody
> else will eventually buy the company and pay out dividends (or the
> equivalent, if privately held or a subsidiary).
>
> A lot of people do miss the idea; a company truly committed to never paying
> a dividend (and never allowing a future purchaser to pay a dividend) would
> be worthless, no matter how much money it makes.
That's basically right, except a company can also return money to
investors by buying back its stock. Many companies that don't pay
dividends have regular stock repurchase programs. The advantage of stock
repurchase compared to paying dividends is that investors don't have
to pay income tax on the dividends.
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