Why should it pay me 10 cents a share just because I own some stock? I don't get it.
2007-05-18 06:26:06 · 10 answers · asked by Six2eyesblue 1 in Business & Finance ➔ Investing
A stock dividend is a pro-rata distribution of additional shares of a company’s stock to owners of the common stock. A company may opt for stock dividends for a number of reasons including inadequate cash on hand or a desire to lower the price of the stock on a per-share basis to prompt more trading and increase liquidity (i.e., how fast an investor can turn his holdings into cash). Why does lowering the price of the stock increase liquidity? On the whole, people are more likely to buy and sell a $50 stock than a $5,000 stock; this usually results in a large number of shares trading hands each day.
2007-05-18 06:36:44 · answer #1 · answered by Scott 2 · 0⤊ 0⤋
The dividend is a way for the company to share its profits with its shareholders, like you. That way, you get a return on your investment without having to sell the stock. Some investors like dividend-paying stocks, because they get a stream of income over the time they own the stock and are not dependent on the stock increasing in value for a profit.
Dividends should be reinvested. Don't spend them. If you reinvest dividends, they will compound the growth of your investment portfolio. That compounding can leverage the size of your portfolio significantly in the long run. See the webpages listed below for a discussion of reinvestment and compounding.
You may be able to reinvest dividends in the same stock that pays them (if the company offers a dividend reinvestment program). If you can't do that, or don't want to, reinvest the dividend in anything you like--other stocks, bonds, mutual funds, U.S. Treasury bills, money market funds, etc. But you lose the ability to compound the growth of your investment portfolio if you don't reinvest. And that would be costly in the end.
2007-05-18 07:43:41 · answer #2 · answered by Uncle Leo 5 · 0⤊ 0⤋
People like to own shares that pay dividends. Paying dividends drives the price up. Then when the company needs some cash, it can sell more shares and get the cash quickly.
2007-05-18 06:30:25 · answer #3 · answered by hottotrot1_usa 7 · 0⤊ 0⤋
Paying dividends make shares more valuable to investors looking for a revenue stream. If a company isn't actively using the cash for R&D, what do you suggest they do with the money? I want them to distribute the cash to me so I can reinvest it and have it working for me. Also, if the company/industry has fully matured, growth in share price will be slow. So, investors/owners demand a dividend to compensate for slow share price appreciation. Finally, dividend distributed within a Roth IRA are not taxed.
2016-05-22 08:14:32 · answer #4 · answered by shawna 3 · 0⤊ 0⤋
more people want to buy the stock so it goes higher. Also a dividend is just telling you that the company has some extra money to give to its shareholders. The Stock goes higher!
2007-05-18 06:32:12 · answer #5 · answered by hunter c 2 · 0⤊ 0⤋
Acutally the stock price will less 10 cents after paying the divdend. The divdend is to attract shareholders to keep the stock.
2007-05-18 07:17:06 · answer #6 · answered by sel_bos 3 · 0⤊ 0⤋
Because it makes the shareholders happy. You do not want to make your shareholders upset. They will sell the stock to another company who will take you over.
2007-05-18 06:28:44 · answer #7 · answered by OC Boarder 5 · 0⤊ 0⤋
Because they are passing the taxation onto you. Smile, some people have stock that do worse.
2007-05-18 06:29:03 · answer #8 · answered by ryteme 2 · 0⤊ 0⤋
If you open your own McDonald's would you take a few dollars from the cash register every now and then or would you leave your money inside the cash register forever?
2007-05-18 12:50:45 · answer #9 · answered by Anonymous · 0⤊ 2⤋
Tax writeoff for the company
Sucks to be the normal people.....we get taxed
2007-05-18 06:34:08 · answer #10 · answered by Anonymous · 0⤊ 0⤋