/biz/ - Business & Finance

>>56539931
>If you put $100 into a company, you can pay a 10% dividend forever. $10 the first year, so you have $10 + a $90 company. Then 10% ($9) the next year, and the $8.1, then $7.29, and on and on. In the end you have nearly $0 in the company and have realized $100 of taxable income without ever having any actual income.

this is a retarded example, and it doesn't reflect dividend investing, or any dividend paying company in the slightest. you're giving an example of a company that has 0 profit that cannibalizes itself to pay a dividend with negative growth. this company would not exist, and no one would invest in this company.

Companies pay dividends from a portion of the profits earned. A company can choose to retain all earnings to perhaps increase its capacity to earn and simultaneously increase its equity and thus increase the price per share, but its just a number on your screen and nearly meaningless unless you sell, which means you'll be taxed to see any utility out of your investment.

interestingly, your example could be used for growth stocks. when you retire, you'll have to cannibalize your assets to pay yourself a dividend, whereas those who had been investing in dividend paying companies retain their asset and profit nonetheless.

>>55382228