You might be wondering about shares in companies such as The a2 Milk Company and Alphabet (Google's
Question:
You might be wondering about shares in companies such as The a2 Milk Company and Alphabet (Google's parent company) that currently pay no dividends. Growing companies frequently plough back everything and pay no dividends. Are such shares worth nothing? It depends. When we say that the value of the shares is equal to the present value of the future dividends, we do not rule out the possibility that some number of those dividends are zero. They just cannot all be zero.
Imagine a company that has a provision in its corporate charter that prohibits the paying of dividends now or ever. The company never borrows any money, never pays out any money to shareholders in any form whatsoever, and never sells any assets. Such a company could not really exist because the shareholders could always vote to amend the charter if they wanted to. If it did exist, however, what would the shares be worth?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781743768051
8th Edition
Authors: Stephen A. Ross, Rowan Trayler, Charles Koh, Gerhard Hambusch, Kristoffer Glover, Randolph W. Westerfield, Bradford D. Jordan