<p>If a stock doesn’t pay dividends, how do you make money off it (aside from obviously selling it at a higher price than you bought it for)?</p>
<p>Assuming you already own the stock: the only way you make money from a stock that doesn’t pay dividends is to sell it at a higher price than you bought it… thus the reason to buy non-dividend stocks is because you see potential for the price to go up sooner or later… then sell when you think its at the best price possible.</p>
<p>“If a stock doesn’t pay dividends, how do you make money off it (aside from obviously selling it at a higher price than you bought it for)?”</p>
<p>311Griff is right. Theoretically, it doesn’t matter whether or not a company pays dividends: your gains will either come in the form of capital appreciation or dividends. When a company makes money, the value of the stock will increase by each share’s portion of the income and decrease by the amount that is paid out in dividends. Either way, you get the same return.</p>
<p>In practice, however, it doesn’t work like that. The primary reason is taxes. At one time, certain taxpayers preferred non-dividend paying stocks because they could defer paying taxes on their gains to years where they were in a lower tax bracket. Now that dividends are taxed at a reduced rate, that advantage has been lessened, and many firms that traditionally did not are now paying dividends (such as Microsoft).</p>
<p>Additionally, some people feel that there is a certain bit of information tacked into dividend declarations. If a firm increases its dividend payment, for instance, you may find that the stock’s value increases. While this doesn’t necessarily make sense (since the firm has given out cash and is, therefore, worth less), many investors feel that a dividend increase indicates better-than-expected performance and that the stock is actually undervalued.</p>
<p>There are a number of other things that complicate this issue; however, those are the two main things that come to mind.</p>