19 Mar 2012 15:17 - 19 Mar 2012 15:17#640519by antoine polus
As far as I understand, the reason people are supposed to buy stocks is to become shareholders in the company. This entitles them to sa say in how the company is run and entitles them to a dividend, to be paid out from the profits of the company.
But then you have a company like Apple, that hasn't bothered paying any dividends since 1995, despite being one of the most profitable companies in the world for the past 5-10 years, racking up nearly 100 billion dollars in cash reserves. Now they have announced that they will finally pay a dividend, of $2.65. Based on today's share price, that works out at 0.4%. Not very much.
So the only motivation, it would seem, to buy Apple's shares, is pure speculation. Hoping that the price will go up so that you can sell it for more later. Companies, it seems, just don't bother paying dividend anymore, and investors don't seem to care. Or in any case, Apple seem to have case their magical spell not only over consumers, but also investors.
Is it any wonder then that we have boom-bust cycles in economics?
Why aren't companies obliged to give a certain percentage of their profits to shareholders as dividend? You'd think there'd be a rule about this somewhere...
Apple is a particularly obvious extreme, but it's fairly normal for tech companies, especially start-ups, not to pay dividends. Partly this is because start-ups bleed cash, and partly because of the whole tech alchemy thing where investors believe the stock could experience massive price growth, dwarfing any dividend.
Why aren't companies obliged to give a certain percentage of their profits to shareholders as dividend?
Presumably for the same reason that shareholders of a Plc have only limited control of a company's management in general. The law pays lip service to shareholder ownership, but in practice, for the most part, management have enormous discretion to act as they see fit.
Management is expected to act in the best interest of the shareholders. If that means distributing excess cash to keep 'em sweet (like banks, etc) that's what they do. If it's to reinvest to grow market share or develop new products or technology (ie, Apple) that's what they do. However, Apple's $100 billion horde is clearly at a tipping point.
Warren Buffett has come under similar criticism over his cash horde, but he's defended himself by saying he's not going to buy at any price simply to use up his cash. And not many have been in position to second guess him, given his track record.
is a randomly googled list of high yield stocks. The yield (percentage) is down the right hand column.
Hard to speak broadly, but certain industries throw off lots of cash and that makes its way down as dividends instead of being reinvested for future growth. Insurance companies, banks, energy producers, etc are good examples.
Thanks for the links. So dividend yield percentage is basically the equivalent of an annual interest rate.
A mathematician (or GY) could give a better answer, but I'll go with 'no'. It's a percentage of the share price. But since we don't know what you bought the share at, it's probably best to not equate it to an annual interest rate, I think.