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Why does the value of a share of stock depend on dividends?

Why does the value of a share of stock depend on dividends? A substantial percentage of companies listed on the NYSE and the NSADAQ don't pay dividends, but investors are none the less willing to buy shares in them. How is this possible?

Public Comments

1. Because investors believe these companies have great potential and will pay a large sum of dividends in the future.
2. I will divide your question into two. 1: why the Value of the stock depends on the dividend? Ans: Stock value is not dependent on the dividend. In fact it is the other way. Based on the value of the stock, the company propose dividend. In the last decade or so, people are relying on the dividend to understand whether the company is making "real" money or is just bluffing. If you are paying a good dividend then it is understood that the Company is in good shape. 2: People investing less in a company which doesn't pay dividend. Ans: People( read the big market players who hold large chunks of shares) will not just look into the dividend part before making an investment. There are lot of factors involved as to why an investor invest in a Company. The major factors are: 1: How the company is performing when compared to peer companies from the same sector, 2: What is the future of the sector. 3: How good the management of the company is. 4: How good are the finance of the company e.t.c e.t.c There are lot of criteria based on which a investment in a company is made. Hope this helps you!!
3. A good comparison to the dividend is interest that a depositor makes on a checking/savings/CD account or another type of bank account. Companies have a life cycle that starts with the IPO. Most companies have high growth after going public and in their early stages, if managed well. After those stages of high growth have passed, growth hits a plateau and flattens. There are two main categories of stock investing: value investing and growth investing. Growth investing involves looking for stocks that have historically high growth rates and can be expected to sustain those high growth rates. An example of a growth stock is Google. Growth investing is inherently riskier than value investing because it is difficult to sustain high growth for a long period of time. As is the case with most growth stocks, Google does not pay dividends. The reason is that management believes that by retaining all of their earnings, they can maximize shareholder wealth to a greater extent. Value investing on the other hand involves determining the intrinsic value of a company's stock based on a number of factors, and if the intrinsic value is above the current price, an investor should short the stock or sell it if the investor already owns it. Value-oriented companies have lower growth rates than growth-oriented companies. Value stocks are considered "defensive." Since the growth rates are lower, the returns on these stocks is lower, but less risky because it is not necessary to sustain a high rate of growth. Usually, value-oriented companies pay dividends. Good examples of value-oriented companies that pay dividends are Procter & Gamble, Johnson & Johnson, Kimberly-Clark and others. The three companies that I have named have a long history of paying dividends. The management of these companies is confident in the financial condition of the respective companies such that they are willing to pay investors who hold stock in their company. The value of a share does not depend entirely on dividends but it is definitely a factor. Investors who are looking for safer stocks tend to gravitate towards those that pay dividends. However, investors who are trying to invest "aggressively" have a higher tolerance for risk, and therefore go for growth-oriented stocks, those that are not likely to pay dividends.