how come not all stocks pay dividends?

[noob_trad3r]

I never really understood the concept of non dividend stock.

I thought when you buy stocks in a company it means you become part owner of the company and you are supposed to take a share of the profits?

A non dividend stock to me would be like buying partial ownership into a restaurant but never making a penny, you put your money at risk but the only time you can earn something on your risk if you sell your share of the restaurant.

But then you are at the mercy of the time, what if you want to sell during the winter? Are you forced to take less money, etc..

Anyways I heard that in the early 1900s all stocks paid dividends.

 

[ChkitOut]

As a common shareholder you leave the decision of dividends up to board of directors (the shareholders representatives). If they think shareholders should get some cash flow the will pay out dividends, if they feel the money would be better off reinvested back into the firm, then you get no dividend.

Also, how do you get a dividend from a business that has not produced a profit yet, as is the case with many company's?

 

[timbo]

Quote from ChkitOut:

... Also, how do you get a dividend from a business that has not produced a profit yet, as is the case with many company's?

The company sells financial asset. Net earnings aren't needed.

 

[noob_trad3r]

Quote from ChkitOut:

As a common shareholder you leave the decision of dividends up to board of directors (the shareholders representatives). If they think shareholders should get some cash flow the will pay out dividends, if they feel the money would be better off reinvested back into the firm, then you get no dividend.

Also, how do you get a dividend from a business that has not produced a profit yet, as is the case with many company's?

Not buy stocks in companies that pay no dividends.

I looked at Cisco, they make money but they do not pay dividends yet the stock does not grow? So what happens to the retained earnings if it is not reflected in the share price? where does the money go. I would think Cisco should be a company that pays dividends like Intel.

 

[ChkitOut]

Quote from noob_trad3r:

Not buy stocks in companies that pay no dividends.

I looked at Cisco, they make money but they do not pay dividends yet the stock does not grow? So what happens to the retained earnings if it is not reflected in the share price? where does the money go. I would think Cisco should be a company that pays dividends like Intel.

Not all company's feel they can afford to pay dividends because of the type of business they are in, with tech you need cash on hand for many reasons.

Check this article out.

http://seekingalpha.com/article/1632-why-3-dividend-yield-is-tough-for-cisco-csco

 

[brownsfan019]

Companies have 2 options with cash flow:

1) put back in business

2) pay it out (dividends)

If you don't like #1, then don't invest in #1. Problem solved.

 

[noob_trad3r]

Quote from ChkitOut:

Not all company's feel they can afford to pay dividends because of the type of business they are in, with tech you need cash on hand for many reasons.

Check this article out.

http://seekingalpha.com/article/1632-why-3-dividend-yield-is-tough-for-cisco-csco

Wow sounds like Shareholders lose and Cisco Employee wins. Well that explains it. Interesting article. so I guess there is a

#3, Use Free Cash to pay employees and directors at shareholder expense.

 

[1flyfisher]

the reasons many companies do not pay dividends is due to the capital needs of the company very often for r&d and to further ongoing operations and future capital needs. if a co doesn't need the capital then they can be paid out in the form of dividends.

 

[1flyfisher]

also there are many important factors to consider in valuing a co aside from whether they pay out a dividend or not. A co paying a dividend is not necessarily a measure of a good stock investment.
i suggest you invest some time and energy in educating yourself. a good place to start is benjamin Graham Security Analysis and The Intelligent Investor.
If you don't have the ability to get through these two books and master the material I can assure you you will not succeed in this profession.
Lazy individuals do not make for successful investors/traders.
Good Luck

 

[LEAPup]

Quote from 1flyfisher:

also there are many important factors to consider in valuing a co aside from whether they pay out a dividend or not. A co paying a dividend is not necessarily a measure of a good stock investment.
i suggest you invest some time and energy in educating yourself. a good place to start is benjamin Graham Security Analysis and The Intelligent Investor.
If you don't have the ability to get through these two books and master the material I can assure you you will not succeed in this profession.
Lazy individuals do not make for successful investors/traders.
Good Luck

I agree. And, look at growth stocks vs. value stocks. You'll get a better "picture" once you know the true difference between the two and why one pays more dividends historically.