The Value of Stock

This order is a discussion post, therefore must include an initial response to the prompt, and two secondary responses. These secondary responses of are students who have already replied to the initial post. These responses must be insightful and helpful to the student. The initial response MUST be completely answered. The order must adhere to APA format, include appropriate in-text citations, and it MUST include a reference page.
Example of in-text citation: (Last Name, Year of Publication, Paragraph Number/Page Number)

Initial Post,
Why does the value of a share of a stock depend on dividends? If that is the case, the stock that doesn’t pay dividend should not have any appreciation in value. True or false? Explain your choice.

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Student Responses,
Why does the value of a share of stock depend on dividends? The value of stock depends on dividends because payment of dividends is the primary way for organizations to share their earnings with stockholders. A share of stock with a higher dividend is more likely to have a higher stock price due to increased demand for the stock. Is the statement “if a stock does not pay dividends it should not have any appreciation in value,” true or false? The statement “if a stock does not pay dividends it should not have any appreciation in value,” is false. Just because a stock is not currently paying dividends does not mean that in the future it will not appreciate in value. The value of an investment depends on present value of expected future cash flows. An investor may invest in an unfavorable stock now because it may become a favorable investment in the future. A few unfavorable stock examples would be a new company or a company that is currently is financial distress. A new company is not typically profitable in the beginning but after a few months or years it can become profitable and the value of the company will go up. Investors can make a lot of money from purchasing cheap stock for a new company that can grow and greatly increase its stock value. Also a company that is currently having financial issues can change their managerial or production strategies and become profitable again so buying cheap stock for companies in this situation could be profitable as well in the future.

Why does the value of a share of a stock depend on dividends? The value of a stock does depend on the the dividend it pays. The value of investments depend on the present value of the expected future expected cash flow. Companies choose to pay dividends. Investors will buy stock from companies even if they are not currently paying dividends because investors believe that the company will eventually start paying dividends. Dividends are a source of cash flow from the shares of stock. Investors take a chance on investing because there is en expected future cash flow.
The stock that doesn’t pay dividend should not have any appreciation in value. True or false? This question is false. Some companies may choose to decline dividends because they are a cash expense. New or young companies especially will decline dividend opportunities for some time because it is an expense where money is going out the door. Companies who are struggling or in a bad financial situation may opt out of dividends as well. Dividends add up and it is money going out. Viewing financial documents and reviewing what is coming in and going out of the company will help determine if a company can afford to pay out dividends. For more information on The Value of Stock checkout this:

The Value of Stock

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