[jacquesm]

> But academics insist that all stocks have value based on their dividends.

That's a strange statement (by the academics, not by you!) since quite a few companies stocks are traded that have to date never issued a single dividend and that may not issue dividends for a quite a while to come. And still somehow the market seems to be able to assign a value to those stocks.

I think that one way of interpreting this is that - just like with start-up valuations - as long as you're growing / adapting / investing dividends are out of the question and the value is mostly based on the story and the dream. Turnover and other numbers are useful but ultimately not as useful as money returned to investors (otherwise, why invest at all?). But once the moment of dividend arrives (and growth / investment) have stopped and the company is now in its middle age that those dividends will be the marker used to re-calibrate the value of the stock. Dividends are a lot easier to use as an input into a formula than dreams and stories which are just repackaged hope.

That's one reason why I find it nearly impossible to put a hard number on the value of a start-up, it's essentially asking for a crystal ball.

[tptacek]

It's not a strange statement. Stocks that don't pay dividends would still appreciate because investors are pricing in either the dividends the company will pay in the future, or the value the company will have to the dividends of the company that will eventually acquire it.

[JoeAltmaier]

Again insistence that stock traders are all about dividends, on no evidence whatsoever? Folks trade stocks because the bid and ask overlap; that's it. There's nothing else going on, except in people's heads. Fictitious future dividends are ... fictitious! Good luck trying to sell your stock for anything but what its going for on the day you sell. Any cries of 'but dividends! Its worth X!" will be drowned out by the marketplace.

And the evidence points to, there's no accommodation for dividends in the price. Stocks ramp up in the month before dividends are issued; drop that day. That's all the market does to accommodate dividends.

[tptacek]

Nobody is arguing that stock traders are "all about dividends". The argument is that the intrinsic value of a share of stock is ultimately about dividends.

Stock traders buy for appreciation. But that appreciation is fundamentally rooted in dividends, either of the company itself, or of some other dividend-paying company that will eventually acquire it.

[JoeAltmaier]

Ok, we can start qualifying what 'value' means. Adding 'intrinsic' distances the conversation from the common meaning of value, which is 'what you can get for it'.

Again, insisting that appreciation is rooted in anything but what the market does, is hard to buy into.

[tptacek]

I'm a little confused; this isn't stuff I just made up. Again, think about what a share of stock actually gets you. People trade stacks because their price fluctuates... but why do they fluctuate? Because the company is earning more? Why does that make a share more valuable?

[JoeAltmaier]

Because people think it does; nothing more. Really, stock shares (most of them) are like baseball cards. Famous players with a good season have cards worth more. But there's no reason for that, than, people believe it.

I'm sure you didn't make it up; this notion has been around for a while. Its just a curious quirk of human nature to believe in things that don't quite make sense.

[damien]

It's likely talking about all future dividends (discounted for time value). Startups will naturally reinvest their earnings to grow, but at some point, pursuing growth will be too costly and the best use of their earnings will be to return it to the owners as dividends.

If a company were guaranteed to never return anything to owners, then it would be more like speculating in the future value of a baseball card than an actual investment.

It may not be a practical way to calculate value, but it's not crazy either.

[eastern]

Indeed. Microsoft paid it's first dividend only in 2003, a good 17 years after it IPO'ed. http://www.nasdaq.com/symbol/msft/dividend-history

There's this too: http://www.nasdaq.com/symbol/goog/dividend-history