I took a class on economics in high school, and as part of that class we had a classroom discussion on the stock market.  In that discussion, one of the most confusing parts for me was dividends.  It seemed crazy that companies will just give you free money if you buy their stocks, what do the companies get in return?  Other folks my age were more cynical, they thought that dividends were just how rich people paid themselves to avoid taxes.  Well dividends aren’t free money, and they aren’t *entirely* a tax dodge, they actually play an important part in the stock market.

As stated in a previous post, dividends are one way that a stock has value to an investor.  Even if a stock doesn’t currently give out dividends, there can be an expectation that they will in the future, and as stated the expected value of all future dividends (divided by uncertainty, multiplied by money now>money later) is part of what gives a stock value.  So if companies want their stock price to be high (and thus the value of their company to be high), they will often give a dividend to prop up the stock price.  But why would they care about a high stock price?  The important thing about stocks is that they are a source of money that the company controls.  The company can do a lot of things with stock: it can pay employees in stock, it can raise money by selling stock, it can purchase other companies with its own stock. Money is power, if a company has a whole lot of value because they have a giant stock price, then all sorts of methods to raise money and acquire assets become available.

So dividends aren’t a scam and stocks aren’t a ponzi scheme.  Companies pay dividends in order to have a higher stock price, which they want in order to finance their company’s expansion should the need arise.  These dividends are part of what give stocks value, and they are one of the reasons that no matter what Bitcoiners tell you, stocks are not ponzi schemes.