*Disclaimer: I am quite new to investing/trading and just recently learned about how to value a company and P/E and DCF and so on, so this question may be very stupid.*
So the reason one buys a stock, ignoring voting rights and other such immaterial gains, is because one expects a return on the investment that in a couple years will be higher than the initial investment.
For a dividend stock this is very easy: say the stock has a P/E of 10, so you pay 10$ today for 1$ of todays earnings. So to keep it simple, we assume the company’s cashflow is the same as the earnings and the dividends are the same as the cashflow and that there is no growth, your investment will have paid off in 10 years just through dividends.
Now add to that the fact that you usually choose a company that grows in earnings and the fact that you can sell this stock to someone else at a higher price and suddenly your investment will pay off much sooner.
But now take a stock where the company has publicly stated that they will never pay a dividend, such as ACM Research when I was going through one of their SEC filings. In this case no matter if you hold the stock for 1 day or 100 years, no matter if the company’s earnings double every year, you will never see a cent of it. In fact, your investment will have lost money through inflation and cost of opportunity.
So why then do people buy these stocks? To sell them to someone else later. Okay. But why do those other ones buy the stock then? To sell them to someone else later. Okay, but… – you get the point? To me it seems like the greater fool theory at work. You always count on there being another fool to buy the stock off of you.
But if this were a perfect market (it’s not) where everyone collectively agrees that non-dividend stocks have no value because they won’t ever give you a single cent in returns, then nobody would ever buy such a stock off of you, and the stock’s price would collapse. It doesn’t matter then how much the company may grow in valuation because nobody will ever see a cent from it.
Now this doesn’t apply if you count on the company paying dividends in the future after the growth phase, or it doing a share buyback or such things. But that is why I took the example of a company that has stated that it will never do such a thing, such as ACM Research.
So then, why would anyone ever buy such a stock in a perfect market? What am I missing here?
**EDIT: Alot of people don’t seem to get that my question is purely theoretical in nature assuming a perfect market. I get that in real-life thongs work differently. That is why I have several non-dividend paying stocks on my watchlist, including the aforementioned one.**
**But I have also been told that shareholders if they have enough voting power can overrule a company’s management and successfully demand the payment of dividends. So in that case then that answers the question even in a perfect market.**
**EDIT2:**
**Another excellent point on why people would buy such a stock even in a perfect market:**
> You need to understand that if you own 100% of stocks then you own the full company. If the company is profitable, there will be people interested in owning it, willing to pay a good price for the stock, pushing the price higher. The more profitable the company is, the more people will be interested in owning the company or at least some part of it. If you buy a stock then at some point someone will want to buy it from you because they will want to get their voting rights from 40% to 60%, something like that
**I think my question has been sufficiently answered then. Thank you.**
**EDIT3:**
**Another reason:**
> The one caveat to this would be the potential for a buy-out. Some small companies don’t pay dividends, but are likely to be bought out at some point by a larger company for a price that will be returned to shareholders in cash or new equity.
EDIT4: (last one lol)
Honestly I had a “conversation” with ChatGPT about it yesterday and it didnt even give me one of those answers, only one of the many other answers I already got here that didnt really adress the issue…
