Is "Monalisa" worth nothing - because it doesn't "pay dividends" ? How about gold ?
Some assets are purely worthy of holding because of intrinsic value. Not sure about your company, though.
To be fair to
@cliffski , that is not an apples to apples comparison. Stocks generally are productive assets, which are valued on cash flow, whereas gold (and maybe bitcoin) are unproductive assets, which are NOT valued on cash flow but some other intrinsic value. If Tesla is in fact structurally unprofitable (as shorts claim, though I do not believe this), then it has zero or negative cash flow. It has no other intrinsic value, and so would be worth zero. Stocks of for profit companies have no other intrinsic value, save for cash flow, or in terms of liquidation, net assets (where the brand value would also be an asset).
This is nonsense.
A share value is based on its share of future expected CASFLOWS and Net Assets, not dividends.
If Tesla issued a secondary class of shares that had the same amount of ownership of the company as a regular existing share (but no future dividend rights), then those new shares would be worth almost the same as current shares. less a small amount based on dividend payment level (which are currently non-existing).
Let’s say Tesla issued this new class of shares on a 1:1 basis with existing shares, so they make up 50% of outstanding shares. now we assume Tesla continues growing over ten years and by 2030 is generating $10 Billion in net income, and is paying out $5 Billion in dividends. If we assume a very conservative earnings multiple of 20x PE, the market cap would be $100 Billion.
So under your theory where shares with no rights to dividends should be worth nothing - one could buy up half of a company (effectively a controlling stake) with a $100 Billion market cap and generating $10 Billion in annual net income for next to nothing? Do you also have some bridges for sale by any chance?
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Also, in regards to your profitable company where you hold 2 shares and are more than happy to issue non-dividend receiving shares, I would be happy to acquire 3+ shares. I now am controlling shareholder, my first action is to remove you from the business and approve sale of business to myself for $1.
This is also not entirely correct and glosses over the point
@cliffski is saying (mind you folks I don't really agree with
@cliffski either). If you could never access dividends via a stock, then it depends. Can you access the future cash flows in any way, say by taking the company private by taking over majority of the dividend and non-dividend paying shares? Then maybe okay.
Say hypothetically, you had a company which generates boatloads of cash, but for some mysterious reason that cash is locked up in an impenetrable vault that no human could ever access. So here is a company that will never pay dividends to individual shareholders nor distribute its profits to any private investor that bought the whole company outright, yet it generates tons of cash. In such a case, it is accurate to say that the this company is worthless, whether it is individually owned by different shareholders or entirely privately owned by some entity. Buffett would not buy this company.
But I don't think this is what
@Thekiwi is saying. He/she believes that someone can eventually access the cash flows of this non-dividend paying stock. And if
@cliffski is making the above hypothetical case, then yes I agree with him/her. But he/she should clarify their argument. None of the currently non-dividend paying stocks are actually of this hypothetical case. Someone can eventually access that cash. But just because they don't pay or plan on paying dividends doesn't mean that the cash is unavailable in the future. Many companies may not ever pay dividends in our or our children's or grandchildren's lifetime. Or as
@ReflexFunds points out, it may be theoretically possible to re-invest future cashflows indefinitely.
The point is that the *cash flow is accessible* to the owners to do with as they wish: pay themselves, re-invest, or simply hoard. Whereas in the above hypothetical case, the *cash flow is inaccessible*. The former company has value, the latter does not.
Cash flow and it's accessibility* is the correct metric for defining value of for profit businesses. Defining value solely based on the narrowly defined notion of traditional stock dividends is at best misleading and at worst inaccurate.
*Since in our world there is no such thing as indefinitely inaccessible cash flows, simply "cash flow" is sufficient (the qualifier of accessibility is not required).
