Why Profits Can Increase the Value of Non-Dividend Stocks

# Shares without dividends


# Shares without dividends












- There are companies selling stocks without dividends.

- If you're lucky, you can buy this stock and then sell it for a bigger price.

- The price is growing because the company itself is growing.

The question: How is the growing of the company affecting the price of the non-dividendial stocks?

I mean, if nothing of those money was ever to be payed as dividends then what's the difference how much profit company makes?

But still, this somehow affects the price of the stocks. How? Why would someone want to be the final owner of the non-dividendial stocks?

## Answer by D Stanley (score 2)

https://quant.stackexchange.com/a/81830

This has been asked and answered many times on Money.SE:

https://money.stackexchange.com/questions/51976/if-a-stock-doesnt-pay-dividends-then-why-is-the-stock-worth-anything

https://money.stackexchange.com/questions/17186/why-do-people-buy-stocks-that-pay-no-dividend

https://money.stackexchange.com/questions/88261/if-a-company-that-doesnt-pay-dividends-makes-a-large-profit-where-does-it-go

The bottom line is this:

Equity shares represent a fraction of "ownership" of the net assets (assets minus liabilities) of the company, plus the expectation of future growth. As the company makes a profit and grows in book value (buys assets, pays off debt), so does the value of that share of ownership. The expectation is that eventually the value of that that ownership will be realized through either dividends, acquisition, or liquidation.

Imagine you own 25% of a corn field, where every penny of profit goes not to the owners but to growing the field. They could buy more land, buy better seed, or improve their efficiency. Wouldn't you expect the value of that 25% ownership to grow as the field becomes more profitable?

## Answer by NoIdeaWhatIamDoing (score 0)

https://quant.stackexchange.com/a/81833

I will keep it simple and vanilla. Company A has 10 investors, each one has a stock valued now at 10 $ (market cap at 100\$). For 2024, Company A generated 50\$ of revenue. Now Company A as every listed company has two options.

- Give back to the investors the 50\$ because it grew as much as it could, hence 5$ dividend for each investor. (see Coca-Cola).

- Reinvest back to the company the 50\$ to fund growth, for example build new plant. So now Company A has another new asset valued at 50\$, that will generate more revenue. Finally, Company A now has market cap of 150\$, hence 15\$ stock for each investor.

To sum up, the ultimate goal for each company is to reach its potential (from growth prespective) and give back the revenue-dividend to investors.