Why would you buy a stock which doesn't pay dividends?

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If a stock is doesn't pay dividends why buy it? You get nothing from it More importantly, if you say that people buy them because they can then sell them if the value of the ...show more
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It would be in your best interest to do some studying on the markets and the products traded in those markets. Also it would help if you also studied something about investing and trading

People buy stock for capital appreciation, as a matter of fact more buy stock for appreciation than for dividends.

Market makers must, by law, provide liquidity in the markets however, market makers DO NOT buy for dividends, the buy and/or sell for short term appreciation. Market makers aa well as professional traders make money regardless of what direction the market and/or stocks move.

Market makers were not primary buyers in Enron, the buying they were doing, along with traders, was covering short positions that they took on either that day or the day before. (My firm was one of many of them)
If you are making profits on the down side, how is this "throwing money away". Many traders were restricted by their firms as to how long they could carry short positions, therefore they were constantly buying to cover shorts

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From the street
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  • Jack M answered 3 years ago
    Don't forget about stock repurchases either. When a company uses its earnings to buy back shares of its own stock, it reduces the number of shares outstanding. The market value doesn't change, however, because the price of the remaining shares rise to compensate. Companies do this all the time as a way of rewarding their shareholders with capital appreciation, not just dividends. And while dividends are subject to double taxation in the same year (first by the corporation, then by the shareholder who receives the dividends), stock repurchases are not.
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  • Madmax answered 3 years ago
    For the capital appreciation effect. As the value goes up so does share price. Look at netflix and sirius radio as fine examples...They have made many holders rich.
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  • wg0z answered 3 years ago
    perhaps becasue the price apprecaiton is so good the dividends dont matter.
    if a stock doubles in price every 4 years, as an example, you probably wont care about any lack of dividend.
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  • clayjar_azn answered 3 years ago
    The market is very liquid so there is always constant selling and buying. Only in pennystocks, do you need an actual buyer. Even when the stock is going way down, there is always people who are looking for bargins.

    What do you mean you get nothing. When people bought Apple at 200 and it went up to 340 and sold it. They made a lot of money and it doesn't pay dividends since it is putting its money into growing the company business which helps the price.

    Oh Enron paid dividends. Think people were appreciative when they received a couple hundred bucks in dividends but lost tens of thousands of dollars in lost value?

    Microsoft paid dividends and the stock has been going nowhere for 10 years.

    Not all dividend paying stocks will make you money. Some do some don't. Same with nonpaying dividend stocks. You have to do research on each company. Don't base your investment on whether it pays a dividend.
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  • jeff410 answered 3 years ago
    Investors buy stocks that pay no dividends because they generally grow faster than those that pay dividends. Why buy a stock that pays a 3 percent dividend and grows 3 percent per year when you can buy a stock that pays no dividend and grows 15 percent per year. The reason investors chose one over the other is risk and volatility. Stocks that pay dividends are less volatile and safer generally. Investors that can deal with more risk buy growth stocks that generally pay no dividend.

    Market makers are generally obligated to stand by and make a market in a stock by holding an inventory and buying and selling. Market makers set the bid and ask price they are willing to buy and sell at. The difference between the bid and ask represents interest in the stock. Investors may not like the price they can buy and sell at but they usually can trade the stock. Market makers dont blindly buy and sell at any price. The market makers make their profit on the difference.
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  • frozen555 answered 3 years ago
    Netflix doesn't pay dividends. Had you bought 1000 shares of Netflix for $20,000 three years ago, you would now have over a quarter of a million dollars. That's exactly why people consider buying companies that pay no dividends! They want to grow their investment.

    The market makers' job is to create liquidity. HOWEVER, they are not fools! These are professionals who work on Wall Street everyday, and they know the stock market better than 99% of the traders and investors that they do business with. Plus, they have access to the fastest and most advanced information network that shows everything. At any given moment, they can see how many people want to buy XYZ stock at different price leves. They see how many shares are up for sale at once and how many shares have been shorted. They have quite a bit of advantage. Let's put it that way.

    They do not buy when everybody sells. That would be foolish. It's a quick way to get killed in the market. What market makers do is they see where people want to trade, and they move the market in the direction of the biggest volume. Market makers have to keep an inventory of shares, so they do own some stock, which they can sell at any time. By selling their inventory, they can create a small downtrend. So, they have some control over the direction of the market (sometimes). Sometimes the market has made up its mind that it wants to go up or down, and in that case, they just let it ride. But if there is no definite trend, they can make a turn and cause a stock to jump up and create an signal for other traders to buy. When other daytraders see the signal and jump on the wagon, market makers may ride the trend for awhile and then get off at some point. Their goal is to create big volume, but at the same time they want to keep their books in balance. They don't want to lose money. And they don't want to own too much of a stock or too little.

    If a trader enters an order to sell a billion dollars in the open market, the market makers are going to buy up some of it, of course. But when they see the large supply of stock pushing prices down, they sell their stocks and stand aside to let the thing fall. That's what happened on May 6, 2010. No market maker is foolish enough to buy when everybody is selling.

    Why would a market maker buy Enron when it's falling? Keep in mind that market makers make frequent trades. They may buy one one moment and sell few seconds later. It's not like they buy Enron at $50 and sell 1 week later at $20. That's what some investors did. Market makers make lots of trades very quickly. They might buy at $39.50 and sell at 39.62.
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  • John W answered 3 years ago
    The theory is that the company is re-investing it's profits to grow the business so the value of the company grows and hence the market price of the shares. It's basically a reinvestment or compounding of your investment. Also the idea is that a dollar reinvested results in more than a dollar of value as it is being invested in a business model. Also having the profit reinvested in this way means that you don't get taxed until you sell the stocks and therefore if it's a solid long term investment, it becomes effectively a tax deferred investment.

    The downside of growth investing is that the actual value added by the reinvestment of the profit is difficult to estimate and there is no periodic convergence onto the true value to correct one's estimates over the long term so your assessment of the company's value could be off by a large amount at any given time. Also, the value reinvested is at risk as company's do fail. Then there's also the fact that no business model can grow indefinitely as sooner or later there will be a depletion of the available market. To a certain extent, growth companies rely on constant innovation to open new markets to assure investors that there is still opportunity for growth.

    Market makers actually avoid buying and selling whenever possible and even when they do buy and sell, it's on the behalf of their firm's clients. The stock market brings buyers and sellers together, you do not buy and sell with a middle man. Often when a stock is obviously on it's way out, the buying is to cover short positions.
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