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So I was reading this article on 'Understanding the basics of Stock Owning' (1).

It starts by saying, Exxon has 5.28 billion shares of stock outstanding, in other words, they have divide the company into 5.28 billion pieces.

It then goes on to say, the stock is worth $90.70 per share and if you own the share you get a dividend of $1.70 a year. Finally, if the company closes or sells itself or w/e then you get ~$20 per share. Fine.

My question is, why would anyone buy this stock? Its dividend is $1.70 a year, if you bought a stock, you'd have to wait a long time for it to pay itself. Or is the idea that it's a kind of (unreliable) bond where you can invest $1,000,000 into the stocks and get a decent return every year through dividends? The price is driven by speculation on the dividend (analogous to some kind of mutable bond coupon).

This leads to my second question, why would anyone buy shares of a company that does not give out dividends? If the company closes then you only receive a fraction of what you paid for the shares, what's the incentive?

[1] http://www.thesimpledollar.com/personal-finance-101-what-exactly-does-it-mean-to-own-a-stock/

JoeTaxpayer
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MathsIsHard
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1 Answers1

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For XOM if you were lucky enough to purchase on 20 Jan 16, at 73.18/share and sold on 15 July at 94.95 you would achieve a 29% return in six months. Awesome. You'd also get a dividend payment or two adding another percentage point per to your returns.

The one year chart for FB shows it increasing from ~95/share to ~129. Yet no dividend was paid. However, the 35.7% YTD for 2016 should make anyone happy.

Both of these require excellent timing, and those kind of returns are unsustainable over the long haul. Many people simply hold stocks. Having the dividend is a nice bonus to some growth.

Why to people buy stocks? For profit. Sometimes dividend payers offer the best option, sometimes not.

Pete B.
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