Hey everyone, I have just been really curious lately, and I don’t really understand why people would trade stocks don’t pay any dividends because they don’t actually get any value from it. Things like houses, gold or even art pieces have value because there is utility from it wether it is survival or just enjoyment, but I don’t really see the utility in stocks without dividends
I get that people trade these stocks hoping to gain a profit by selling at a higher price to another investor, then that buyer hopes to sell it at a higher price to another investor too and it goes in a loop, but there is still no value to the stock, and people don’t get anything from the stock; it’s like a game of don’t be last between traders, so why would the stock price go up in the first place if investors don’t believe in the game. When the earnings or profits have gone up for the company, why should people care, if the people wont ever have a claim on any of the earnings?
It seems to me that people are trading based on the perceived value kind of like baseball cards, but except you can actually get some type of enjoyment or pride from those cards, by owning it physically? I understand there is still value of owning these shares especially if you get voting control, or some type of ownership of the assets but majority of traders won’t ever trade large enough shares to do so. So does this mean there should actually be no value to stocks that don’t pay dividends if investors didn’t try to play this game of Don’t Be Last.
People say that:
Companies can pay dividends later on, and people buy these stocks speculating that the company will pay a higher amount of dividend in the future, but it has been evident in many cases that even when a company like Apple decides to start paying dividends, they only pay a small amount, and there are a lot of companies with much less of a share price paying the same amount of dividend, so why should the share price even go up before Apple starts paying dividends if investors know that the speculation is likely to be untrue.
The company can do a buyback, which causes the share price to increase, profiting the shareholders but why would the increase in share price after the buyback matter besides selling to other people who are playing the game of don’t be last aswell.
I’m sorry if there is a very obvious economic reason behind it but I was just very curious. Any replies is greatly appreciated. Thanks!
