Hmmm... actually, I think your explanation backs up exactly what I was getting at.
Maybe I didn't explain it well. What I'm saying is that it doesn't seem like it makes any difference to the stockholders financially whether the profits are transferred in dividends, the stock is bought back, or the profits are reinvested in the company. In any of the three cases, they receive their share of the profits. It's just three different ways of them getting it.
Let's say there are 1 million shares and the company makes an unexpected profit of $1-million. As soon as they announce it, the price per share should go up by $1. So at that point it has already really been transferred to them. If they pay that $1-million out in dividends, then it drops back down by $1 to what it already was, but they get the cash. If they don't pay dividends but re-invest it in the company or buy shares back, then it stays at the increased amount and they don't have the liquid cash but they still have the value in their portfolio and can sell it, cashing in on it, at any time. Right?
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timeasmymeasure
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Date: 2010-04-05 01:46 pm (UTC)Maybe I didn't explain it well. What I'm saying is that it doesn't seem like it makes any difference to the stockholders financially whether the profits are transferred in dividends, the stock is bought back, or the profits are reinvested in the company. In any of the three cases, they receive their share of the profits. It's just three different ways of them getting it.
Let's say there are 1 million shares and the company makes an unexpected profit of $1-million. As soon as they announce it, the price per share should go up by $1. So at that point it has already really been transferred to them. If they pay that $1-million out in dividends, then it drops back down by $1 to what it already was, but they get the cash. If they don't pay dividends but re-invest it in the company or buy shares back, then it stays at the increased amount and they don't have the liquid cash but they still have the value in their portfolio and can sell it, cashing in on it, at any time. Right?