Million said:
So investers generaly work with either kind of stock specialising in one or the other right ? i'm guessing growth stock is worth more than value stock because of the potential risk of investment right ? Why does microsoft have such huge reserves of cash , i'm guessing they have more than enough to cover the overheads of the business why don't shareholders pocket it ?
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Because Microsoft makes HUGE pile of cash every year.
They used to have a crazy war chest but a few years ago they gave some back to the investors in the form of an exceptional dividend.
That's another reason they had such a huge pile, typically growth company don't pay much dividends to their shareholders, as their stock tends to perform better than value stocks and they feel there's no need for a dividend.
Shareholders can't pocket the cash like that, there's only 2 ways to return cash to them :
1) through a dividend, the issue is that aside from exceptional dividends which are very rare it then becomes a recuring dividend so the company has to give it every year and it's expected it will stay stable or raise every year. A dividend going down or not payed anymore is usually a sign of a company going bad. So once you start paying a dividend you have that amount of money going out to the shareholder every year and you can't hold onto that anymore if like say you wanted to acquire another company...
2) through a stock purchase plan. The idea is the company will spend cash to buy back some of the outstanding stock, raising the value of the stocks remaining on the market as a side effect ( if you have 1000 shares of a company and the company has a total 1 million shares outstanding and buy backs 100 000, suddenly instead of owning 1/1000th of the company you are now owning 1/900th).