If a company like Apple pays a dividend and its stock gains 20% in a year for example, going from $100 to $120 per share, does the dividend have any connection to the stock’s price growth, or is it simply extra money given to shareholders because the company made a profit?
6 Likes
Does Apple’s payout have any impact on your share appreciation?
Not really. If the share price increases, the company doesn’t directly gain more money unless it issues additional shares which happens occasionally but not frequently. When a company distributes a payout, the share price typically declines by the amount of the payout. Otherwise, buying stocks just before the payout would be a risk-free opportunity.
Typically, the company has cash from its profits and may not have a clear way to reinvest it back into the business, so it distributes that cash to its owners the shareholders.
Interestingly, some companies even take out loans to make these payments. It may seem irrational, but reducing the payout from one quarter to the next can alarm investors. This leads companies that lack immediate cash to rely on borrowing, hoping that profits will improve or that they can bring back money from international operations in subsequent quarters.
6 Likes
Wow thanks a lot, you very detailed.
5 Likes
When a company turns a profit, its valuation increases accordingly. For example, if a company is valued at $100 million and earns an additional $10 million in a year, its new value would be $110 million. If the company decides to reinvest that profit, your stake becomes more valuable since the profits remain within the business. If the company opts to distribute some of that profit to shareholders, this distribution is known as a dividend.
For instance, if they distribute $5 million and reinvest the other $5 million, you benefit from both growth and cash. Your shares might increase in value by 5%, while you also receive the $5 million in cash. If you reinvest that cash to purchase more shares, your overall investment in the company remains the same as if no dividend was paid. The main difference is that you would owe taxes on the realized gain from the cash distribution.
4 Likes
Dividends are simple to understand, you get paid a little sum of money for your investment in the company. You get more if they grow. Every quarter, I get paid for doing nothing. I reinvest my dividend in other stock purchases. Every quarter, repeat.
3 Likes
Absolutely. Dividends provide an excellent opportunity to gain from a company’s growth while compounding your investment. It’s a way to be rewarded for holding your investments over the long term. How do you determine which stocks to reinvest in for the best returns?
2 Likes
Ben Felix can be found on YouTube. Growth as opposed to dividends.
1 Like
Concentrate on growth for long-term benefits.