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Amazon stock doesn't pay any dividends, and they don't buy back shares.

Therefore, your statement "only dividends matter" must be incorrect since Amazon stock has a non-zero value.

The price of Amazon stock is ultimately supported by expectations of future dividends. The same is true for other stocks too, of course.

Whether or not the company has paid out dividends in the past is a good predictor of whether they'll do so in the future, but it's not the only such predictor. Having accumulated a mountain of cash but using it to invest in the business (buildings, equipment, and other productive assets) is another. Probably better, at least in some sense/cases.

The other way in which the stock is supported is by other people's expectations of other people's expectations of future dividends, and so on. I.e., speculation. Still tied to dividends, just in an unhealthy and volatile way.

This. Right now, Amazon has about 40 billion dollars of cash and is generating another 10 billion a year and growing. Shareholders don't mind companies investing in future earnings but once they start having too much cash on hand signaling they don't know what to do with all of it, they will start clamoring for share buybacks and dividends just like what they are doing with Apple and Google who have had too much cash on hand.

I would make a large bet that Amazon will announce a share buyback and/or dividend in the next 5 years.

Or it's underpinned by the value of controlling Amazon and its wealth, rather than the expectation of dividends.

Ultimately, value of a stock rests on the expectation of future earnings of the company.

Really ? That's one of those things that is "obviously true", but if you go back to the 80s and measure ... it's not true (back then it was a very low multiple of bankruptcy sale value of the company. Something like 1.2, 1.3 times that, or for a bad company 0.8). So this is something that became true, really in the 90s, and has been true for 25 years or so now.

That of course means that it's not actually a law of economics, the way it's always presented. And I must confess myself reluctant to believe this is a permanent situation.

Sure, the present value of an asset is the discounted sum of future cash flows.

But if there is no expectation that shareholders will actually receive any of the future cash flows, then there are zero future cash flows to discount.

Berkshire Hathaway is one of the most successful stocks of all time and they have never paid dividends.

Yes they have through stock buybacks which are just a more tax efficient way of paying dividends. Also, they're so limited on investment ideas, he's even considering a 100 billion dollar stock buyback [0].

[0]: https://qz.com/1611997/warren-buffett-hints-on-timing-of-big...

Interesting, thank you.

Amazing analysis, only problem is n=1.

n >> 1

84 companies in the S&P 500 index do not pay dividends.


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