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Why does the demand for a stock that does not pay dividends increase (thereby raising the price of it)?

Speculative investors purchase stocks in the hope that the price will increase..  A stock which does not pay dividends today could still increase in value if:

  • the company engages in stock buybacks, decreasing the number of available shares, or
  • it starts paying dividends, or
  • it becomes a merger or acquisition target (so the current shares will be bought for cash or swapped for shares of a different company, at a premium), or
  • a Private Equity firm takes the company private (again at a premium to the current price), or
  • other investors decide that it is a worthwhile investment

Ultimately the stock is driven both by fundamentals (cash flow) and by speculation (attempts to predict what other investors will do.)  Dividends alone don't come close to showing the full picture, as they are just one of the possible ways the company's cash flow could benefit investors.


Because then you can sell it and make profit.