They buy a share at (say) ￡20 which regularly pays them a 10% dividend of (again, say) ￡2. These people are investing for income - they may be an investment fund; pensioners or looking to build up a stash of capital for buying other shares.
Of course - to spread the risk, they wisely diversify, and may buy different shares - some of which may be worth more than the standard ￡2, some less. The hope is that they're making a profit.
As you've pointed out, the value of the individual share may rise, so the investor wins on both the share value and dividend front.
A company optionally issues dividend from profits made in the last year. They may not issue a dividend, but may invest in new processes, techniques or machinery to (hopefully) make a larger profit next year. It may issue dividend because that money attracts new shareholders. It might actually use the excess cash as a sponge, to absorb some of the shares on the market - thereby increasing the share value and securing their stockholders position.
Paying dividends is a corporate strategy to position their company to find favor with investors looking for "yield" (income). Companies that have a long tradition of profit, dividends, and increasing market value, are considered the "Blue Chips" (the best of the best) e.g. PG, JNJ, XOM, KO
Growth stocks typically don't pay dividends so the profits can be re-invested in the company. Or, they use the accumulated cash to buy competitors or businesses in new industries. Facebook and Google have been active buying other companies.
If the company accumulates a lot of cash, but really has no "use" for the money, they may declare a "special" or "one time" dividend to stockholders. Microsoft did this a few years ago.
" so that when your holding is large enough it is quite possible to be paid a dividend that is equal or larger than your original investment"
Let's see...Suppose semi-annual dividends, a 2% dividend rate, reinvest all dividends...we need
X*1.02^N *0.01 = X => 1.02^N = 100 => N = 232 years....
Gee that is a good investment plan....
Edit: As usual most of this is junk. As PrivateBanker points out tax deductible dividends is but a nice fantasy. Bring it on, but to my knowledge it is like that nowhere on Earth and certainly not in the US or Europe.
Dividends aren't a "reward" for stockholders or paid to make shareholders happy. Stockholders own the company and collectively decide if they should pay themselves dividends or reinvest cash in the company. Sometimes management gets in the way of responsible dividend policy....
If you have just bought stocks (as they are generally called in the US) you now own a share of the company, in other words you are part owner of the company.
So as an investor and part owner, don't you expect a return on your share of the company.
You asked what is in it for the company, you are actually saying what is in it for me the owner because I have a 'stock holding' in the company, hence the term stocks and shares.
Here is my webpage on what you have found, keep the shares for years and keep being paid in more shares if you don't need the do$h, that way your number of shares increases, so not only does the price increase, the number of shares held increases, so that when your holding is large enough it is quite possible to be paid a dividend that is equal or larger than your original investment, and you have a much larger investment to cash, should you wish to.
http://www.johnashtone.com/stocks-shares...
You are trying to reinvent the wheel! We live in a capitalist society which involves corporations making a profit. A corporation rquires capital to start and to expand. A main source of capital is from shareholders. In order to attract capital a corporation has to offer something in return. That is earnings growth and dividend growth. Dividend growth means happy shareholders and happy shareholders means access to cheap capital. You only have to see how investment works to see why dividends, or profit distribution, are important.
If you don't get this you don't get the whole picture of investment.
Paying a dividend (out of the profits they make, so they can take a Tax Deduction for it) makes the shares of the company more attractive to investors (like you!), who are consequently far more likely to hold those shares long term...
Companies whose stocks PAY dividends do not have to focus of pushing up the Stock price so much, so can focus on doing well "long-term" rather than on the results for this quarter...
The shareholders are the OWNERS of the company. Dividends are one way to return profits to those owners. Duck-Duck's goose is cooked. Dividends are NOT tax deductible to the company NOR to the shareholders. Dividends are typically profits of the company, which have already been taxed, and then shareholders are taxed again on those dividends as one type of income. Hence the term double taxation of dividends.
Its to reward shareholders for putting money into the company, something for the risk they are taking, share prices go up as well as down
just put some money on an investment fund that's based on stocks that have a policy of paying dividends, and the whole thing sounds great, as i can make money not only from the stocks going higher, but also from the dividends themselves.
my question is: since paying a dividend is not mandatory, what's in it for the company?
