"why does the value of a share of stock depend on dividends?"?

Answer 1

Virtually all mature, profitable public companies pay a cash dividend to shareholders, which actually is a distribution to the owners (stockholders) of a part of the company's earnings. Dividends must by state corporate law be paid out of current or retained earnings. Dividends are widely considered by investors to provide a valuable gauge to the company's health. A company's willingness, and ability, to pay dividends through the years indicates its stability. Dividends provide needed income for many investors and provide a strong measure of certainty concerning the company's prospects. An increase in the dividend is considered a strong sign that bodes well for the firm's future (and vice versa, as noted below). A company generally is viewed quite favorably when it initiates a dividend; it in effect is joining the big-boy club.

Lots more at the link.

Answer 2

Dividends come in two forms...distributed earnings and liquidating dividends.

A company's value is the definition of the Present Value of future dividends.

This present value is based on an accepted rate of return and estimated earnings...which can be distributed.

If a stock is sold, you are selling the priviledge to future dividends. If dividends have not yet been distributed, the price will be higher...when dividends are distributed, the stock price will drop...because there are less earnings left to distribute.

If there are no earnings but a dividend is made...it is called a liquidating dividend. For instance, if a company liquidated its assets and paid off its debts...what was left would be given to stockholders as a liquidating dividend. Afterward, no future dividends would be available, so the stock would be worthless.

Answer 3

The earnings per share ratio is usually the basis on which stocks are valued. Sometimes this results in a divdend payment, but not always.