From: Lee Daniel Crocker (lee@piclab.com)
Date: Thu Sep 12 2002 - 02:57:30 MDT
> > 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).
>
> Sorry but you are totally mistaken. The board of directors has no
> obligation to pay dividends to shareholders at any time. They are
> obligated only to see that the company is managed well to the benefit of
> the shareholders, i.e., "to enhance shareholder value". In the case of
> non-dividend growth companies, their objective is to increase the share
> price by increasing profits.
"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. A company can make a healthy profit,
after all, without growing. 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.
The directors are free to delay issuing dividends to grow and raise
the price of the stock, but the price only goes up if buyers think
the growing company will thereby produce more profits to distribute
as dividends. If you make money by selling a stock at a higher price,
it's only because the person buying is more convinced than you are
that it will eventually pay dividends. It really is all about
dividends in the long run. That's just Econ 101. The media might
not understand that, and lots of uneducated investors and wild
speculators might not understand that, but it really ought to be
basic high-school economics. The /only/ way to profit from stock
/ownership/ (not sale, ownership) is to receive dividends.
-- 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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