Dividends in the future
Even though we may never receive a dividend from a stock, we should still be able to make a gain through stock price appreciation. Let’s say a company will only start paying out $100 a share in dividends 100 years from now and that its dividend per share will remain stable from then. An investor who wants to earn a 10% return will be willing to pay $1000 a share at that time....I recently wrote about why dividends are the ultimate driver of stock valuations. Legendary investor Warren Buffett once said: “Intrinsic value can be defined simply as the discounted value of cash that can be taken out of business during its remaining life.”
And dividends are ultimately the cash that is taken out from a business over time. As such, I consider the prospect of dividends as the true driver of stock valuations.
But what if a company will not pay out a dividend in my lifetime?