Stock Price and Dividends

Paper Summary:

This paper explains that investors in the stock market keep track of a variety of measures and benchmarks for determining value and for choosing what stock to buy and when to sell. The author notes that investors can gain value not merely from selling their stock but from earning dividends. The paper relates that the traditional fundamental strategy is to think of oneself not as a purchaser of shares of stock, but as a purchaser of companies.

From the Paper:

"Investors in the stock market keep track of a variety of measures and benchmarks for determining value and for choosing what stock to buy and when to sell. Investors can gain value not merely from selling their stock but from earning dividends, and this raises the question of what may be the relationship between stock price and dividends paid. Jeremy J. Siegel notes that the price of stock is like any other financial asset in that it "equals the present value of the expected stream of future cash payments to the owner," which themselves are uncertain and are "subject to the earnings of the firm": The uncertainty contrasts sharply with cash payments to bondholders, the value of which is fixed by contractual obligation."

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