Y do stccks have value/demand if they dont pay a dividend and there is no prospective buyback? why demand them

Question

i understand the synergy of joint ownership and pooling capital to achieve grand endeavors in a shorter time frame. but i want to know the MATERIAL connection between a stock and the enterprise behind it after it is in the public domain. why would anyone buy a piece of paper if the underlying enterprise will not pay dividends and will not buy it back? is stock trading based on fantasy gambling? are derivatives just instruments of a public roulette table? does stock trading have any substance whatsoever? i just cant seem to make the link with stock and enterprise.. why do stocks appreciate (beyond the normal forces of supply and demand)? why do we even demand them? is it not the case that ULTIMATELY the company must either buy them back or pay a dividend?

Answer 1

You are making the assumption that because a stock does not pay a dividend now, it never will.  This is wrong.

If a stock has earnings, and it has opportunities to invest those earnings in itself and it does, then the company grows.  When the company is more mature, those opportunities are fewer, so it will start to pay out the earnings as dividends.  Part of the value of a stock is the right to collect future dividends.  The other thing is, as a company grows, it accumulates assets.  These may be patents or hard things like equipment and real estate.  These assets could have value if someone were to purchase the whole company in a buyout.

Answer 2

People will buy a stock that pays no dividends because they believe that somebody else will buy later from them at a higher price. It doesn't really matter who will buy it or why they will pay a higher price.

There is a gambling aspect to investing because a person doesn't absolutely know what will happen to the value of the investment, but true gambling is hoping the value will increase when an analysis shows that it won't.

Answer 3

If you own a business that is profitable and is expected to increase profits in the future, that business becomes more valuable.

Now your business has assets that you have to finance.  If it costs you 5 percent to finance those assets and the business is making 8 percent on them, it doesnt make sense to pay a dividend because the value of the business will increase if you reinvest the profits.