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Why does the value of a share of stock depend on dividends? A substantial percentage of...

Why does the value of a share of stock depend on dividends? A substantial percentage of the companies listed on the NYSE and the NASDAQ don’t pay dividends, but investors are nonetheless willing to buy shares in them. How is this possible given your answer to the previous question? Referring to the previous questions, under what circumstances might a company choose not to pay dividends?

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The value of a share depends on dividends because a regular dividend paying stock with high dividend yield provides investors with a regular source of income. Thus this is anticipated to provide good demand for the stock by the investors and this would drive up the stock price.

If a company has got great investment opportunities ahead for them, then the company can choose to invest the surplus cash in these investments and chose to withhold paying dividends. In such a case, the investors may still chose to buy the stock in expectation of capital gains through appreciation of share price.

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