Referring to a stock, investment, or company that does not distribute dividends to its shareholders. Dividends are periodic payments, usually in cash or additional stock, that a company distributes from its profits. A non-dividend-paying entity retains its earnings for internal investment, debt repayment, or other corporate purposes, rather than sharing them directly with investors. This strategy can potentially lead to higher future growth or share price appreciation but offers no immediate income stream for shareholders.
Non-dividend-paying meaning with examples
- Many technology startups are initially non-dividend-paying, reinvesting profits to expand their operations and research. Investors in such companies are primarily focused on capital appreciation. Despite the lack of dividends, these companies often show promise of high returns from future growth and market expansion and often reward shareholders with stock appreciation.
- A growth stock might be a non-dividend-paying investment. A company that is prioritizing expansion may choose to retain its earnings, using that cash to invest in new projects, research and development, or strategic acquisitions. This allows the company to increase its market share.
- The fund manager stated that the investment strategy focused primarily on the growth potential of the non-dividend-paying companies within the sector. The plan was to choose companies that reinvested profits, expecting greater long term growth and increasing value of holdings over time rather than seeking current income for the fund.
- Real estate investment trusts (REITs), which commonly pay dividends, were contrasted with speculative non-dividend-paying tech stocks in an investment report. The report suggested that the non-dividend-paying firms would likely grow the fastest, but come with the most risk.
- The board of directors decided to designate a significant portion of the profits to research and development rather than declare dividends, thus making this a non-dividend-paying financial situation, with all profits used for expansion of the business into different markets.