Sure that makes sense. But academics insist that all stocks have value based on their dividends. My local prof of finance (and old high school friend/poker buddy) is one. I can't fathom how the ivory tower types come up with this nonsense.
This is, of course, pure academic abstraction. The reality kicks in and you see both unhealthy companies producing healthy dividends (for their private equity funds, usually by raising debt) and healthy companies paying no dividends at all but reinvesting into growth (AMZN).
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.
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.
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.
Again, insisting that appreciation is rooted in anything but what the market does, is hard to buy into.
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.
There's this too: http://www.nasdaq.com/symbol/goog/dividend-history
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.
Probably what they insist on, is that there is this Gordon valuation model, which, long-term, should apply to any company that gives a dividend, and it's based on this idea that for a company to be worth anything for a minority investor without any control of the company, it needs to have a dividend - which is the only return on investment that such investor will receive, apart from profit for selling in the future.
Makes sense to me. If everyone knew a company would never pay any dividends there why would anyone pay for any share of the company? It would be worthless.