Question

. Discuss in which industries most companies do not pay dividend and why?

2. Which factors do you consider in order to value the stock of a company that does not pay dividend and how would you value the stock?

3. Select two publicly traded companies from two different industries and discuss how you would value the stock of those companies. Are your selected stocks overpriced or underpriced by the market?

Answer 1

1)

• A rapidly growing company (usually small or mid cap) don't pay dividends, because it wants to invest as much as possible into further growth.
• In some cases, even a mature firm which believes in performing a better job of increasing company’s value (and therefore a better job of increasing its share price) by reinvesting its earnings,will choose not to pay dividends. Companies that don't pay dividends might use the money to start a new project, acquire new assets, repurchase some of their shares or even buy out another company. For Example: Berkshire hathaway