Re:Why Amazon Has No Profits and Why It Works
by andrewflnr on Monday September 08, 2014 @12:18AM
(#8283419)
stock is a claim against the assets in the event of dissolution
Re:Why Amazon Has No Profits and Why It Works
by dragonwriter on Monday September 08, 2014 @01:41PM
(#8286116)
Its one of those things that's important to understanding the meaning/value of stock, but easy to lose track of in practical terms because, in practice, you almost never see a corporation dissolved in circumtances where the stockholders would see any value, because dissolution, if it happens, usually happens in insolvency, so creditors, with their higher priority claims, leave nothing for stockholders.
But that's because as long as a corporation is solvent, stockholders either expect that it will have greater net value in the future or can find someone else who thinks that, making holding or selling the stock preferable to dissolution. But its the claim against assets in the event of dissolution that supports all that.
Because stock is a claim against the assets in the event of dissolution, so it should be valuable as long as the company is expected to have a positive net worth.
Dividends are simply a mechanism allowing stockholders to realize value prior to dissolution. Of course, so is simply selling stock.
Further, if Amazon runs out of good opportunities to funnel operating returns into expansion, then it would make sense to start returning some via dividends, its just that its not there yet and that situation isn't even apparent on the horizon -- its not that they'll never pay dividends, its just that it doesn't seem to be the optimum strategy for the foreseeable future.