Answer to Question #51390 in Finance for mohammed abdu

Question

A number of publicly traded firms pay no dividends to their shareholders yet investors
are willing to buy shares in these firms. How is this possible? Does this violate our
basic principle of stock valuation? Explain your answer.

Answer 1

A number of publicly traded firms may pay no dividends to their shareholders yet investors are willing to buy shares in these firms. It is possible, if the firm earns no profit or even faces losses. In this case the firm will not pay dividends, as they are paid from the profit after taxes received in the end of the period. This fact doesn't violate basic principle of stock valuation.