Why do some companies pay dividends while others do not? Novice investors are very fond of companies that pay dividends.
Morally, even if the price of the shares after the purchase drops dramatically, people reassure themselves that they will still receive cash once a year, once a quarter or once a month.
However, according to statistics, this approach is fundamentally wrong. Some companies almost never pay dividends. At the same time, the growth in the value of their shares is much higher than the growth in the value of "dividend companies", even taking into account these same dividends.
Why is this happening? It's simple. Having received the annual profit, the board of directors of the company decides what to do with it. The money can be paid to investors in the form of dividends, or you can put it further into your own business.
The decision is extremely serious. And if it is wrong, in a year the shareholders will definitely not pat this board of directors on the head.
Therefore, if a company decides to further invest money in its own business, it understands that this money will bring additional profit, which should be significantly higher than the bank interest.
This profit, which is formed over the next year, raises the company's stock price, since now the profit is higher for each individual share. And this can happen for decades.
If a company realizes that the market does not physically give it the opportunity to expand (for example, due to strong competition), then it simply does not make sense for it to invest in the opening of new stores, production facilities or fields.
At the end of the year, on the newly invested money, not profit, but losses in general, can be obtained. In this case, it is easier for the company to pay dividends.
What determines the price of a particular stock? Quite simply, then only from the expectation of future profits. When a company has nowhere to grow, expectations drop dramatically, and vice versa. That's why stocks of companies investing in their own business but not paying dividends are growing much faster.