-4

Let's imagine I have a house which makes me profit because I have tenants. Would you buy a part of the house (less than 50%), if I keep all the profit myself and you know I would never sell it? Is't it would be a same that buying a share in a company with no dividend paid?

--Edit: Let's reframe the question a bit, what if owning the house and lease out made by as a company. I own the company and then decide to sell the 49% of it. (I keep 51% so can keep the control) I (as a main stakeholder) would decide that I'm the CEO and I would take all the profit as a wage. So no profit, no dividend. What would happen with the share value? Would someone buy it?

Fulee
  • 7
  • 2
  • 1
    Is good transportation available near this house? – Bob Baerker Feb 01 '21 at 21:33
  • 4
    What is missing from the scenario is: is there a stock market where I can sell my shares? If the only person I can sell to is you, then it isn't like a company that is on a stock exchange. – mhoran_psprep Feb 01 '21 at 21:39
  • What do you mean by "keep all the profit myself"? Do you mean I have no legal claim to it? – David Schwartz Feb 01 '21 at 21:44
  • 8
    No, because when you buy shares in a company that doesn't pay dividends, then none of the shareholders get dividends. The situation you describe is where one shareholder gets the profits and the other doesn't. – Simon B Feb 01 '21 at 21:46
  • Better still - the money is set aside until there’s enough to buy another home, and you own 50% of both, now. In less time, a third is bought, and so on. – JTP - Apologise to Monica Feb 02 '21 at 04:00
  • 1
    I may missing simething. If I don't pay divident to my shareholders then I could't get money from the profit? – Fulee Feb 02 '21 at 05:53
  • 1
    @DStanley I think this question should be reopened. Clearly, OP is misunderstanding how stock ownership works, and both you and JTP are answering his question in the comments. Yes, the question you pointed him to might answer is question indirectly, but why not give him a direct answer, explaining the difference between his analogy and reality? – Ben Miller Feb 02 '21 at 14:49
  • This would be a great subject for a chat room, but not comments. – DJClayworth Feb 02 '21 at 16:53
  • @BenMiller-RememberMonica Fair enough - I've attempted to correct the analogy in an answer. – D Stanley Feb 02 '21 at 16:58
  • This analogy is so fundamentally and Deeply Wrong that it makes my head hurt. Where did you get the idea that business works this way? – RonJohn Feb 02 '21 at 23:40
  • Let's reframe the question a bit, what if owning the house and lease out made by as a company and I'm the CEO. I would take all the profit as a wage. So no profit, no dividend. What would happen with the share value? Would someone buy it? – Fulee Feb 03 '21 at 12:47
  • @Fulee If you want to reframe the question, then edit it - don't do so in the comments. – D Stanley Feb 03 '21 at 13:38
  • The CEO is hired by the owners, and does what the owners want. They say, "Distribute the profits", and he distributes the profits or he's not the CEO anymore. And you're half-owner, so you get half the votes on who gets to be CEO. – RonJohn Feb 03 '21 at 14:10
  • @RonJohn I've also thought about the "50%" aspect. But 50% is still not a majority, so there's not any real power, right? It would certainly be clearer if it were 49.9% or 50.1%. – D Stanley Feb 03 '21 at 15:39
  • @DStanley quite true. When the split is 50/50, the two must come to an agreement on what to do. – RonJohn Feb 03 '21 at 15:42
  • I guess you have détente - meaning the other owner can't do anything that requires owner approval either. – D Stanley Feb 03 '21 at 15:49

2 Answers2

8

No, your analogy is not the same as buying a non-dividend-paying stock.

A better analogy would be you buy 50% of a house where the profits all go in a bank account that you "own" half of but can't withdraw from (and neither can the other owner). All you can do is sell your ownership to someone else or wait until the money eventually does get distributed. If the other owner wants to withdraw some, the disbursement has to split in proportion to the ownership (i.e. you get half and they get half).

If I don't pay dividend to my shareholders then I couldn't get money from the profit?

So let's separate the house (business) from the owners (shareholders). The other owner is also a shareholder, and so any distribution to shareholders have to to in proportion to the ownership. So if the other person wanted to take money out of the house, they'd have to distribute some to you.

Let's reframe the question a bit, what if owning the house and lease out made by as a company and I'm the CEO. I would take all the profit as a wage. So no profit, no dividend. What would happen with the share value? Would someone buy it?

In that case the value of the stock is just the value of the only asset (the house). So it would still have value, and for the same reason as a non-dividend-paying stock. You have a 50% claim to the assets in the event of liquidation or acquisition.

D Stanley
  • 133,791
  • 19
  • 313
  • 372
1
and you know I would never sell it?

You can't know that, and I can still sell my share in your house, and that's where your analogy falls apart.

quid
  • 48,976
  • 11
  • 99
  • 161