Why do stocks without dividends have value?

Why do stocks without dividends have value?

The question here is this: If you don't get any cut of the profits, what is the point of buying the stock. Is it just the hope that someone else will want it more?

The answer is based on the fact that the business has value beyond what it pays out in profit. For example restaurant business invests $100,000 to buy the actual building. Owning the restaurant means owning $100,000 even if the restaurant makes no profit at all. When the restaurant makes money, the board of directors may choose to either pay it out as dividend or reinvest (perhaps buying another building). If they reinvest, that tends to add values to the stock. If they pay out dividends, that will go out as cash to the investors rather than to increasing the value of the stock.

Of course the value of the stock can change for other reasons also, like if the restaurant's building happens to be in a city whose population jumps up and becomes more valuable.

In summary even if that little piece of the business doesn't pay any profits, it's still worth something because it represents a fraction of all the stuff that the business owns.



Related Article:
http://beginnersinvest.about.com/od/dividendsdrips1/a/why-stocks-without-dividends-can-still-be-a-good-investment.htm