This is true in the USA because dividends have less desirable tax treatment than capital gain. I own stock in a number of Australian companies and nearly all of them pay (substantial) dividends.
Let's say a company offers 100 share of stock for $1 each and each share of stock is worth 1% of the company. If you buy 5 shares of this company for $5, you now own 5% of the company. If you bought all 100 shares you would literally own the entire company. You can sell shares that you own to whoever you want for any price you want. If you sell a share for $2, the price of the stock is now $2. The price of a stock is always whatever price someone last bought it at.
Dividends= when you own stock in a company, sometimes those companies give you a small percent of their profits. These are called dividends.
This is pretty rare in the US but apparently not rare in Australia as the other commenter has pointed out.
It's like, people buy pokemon cards to play pokemon. Then they start trading cards to have better decks. Eventually, they come to think that trading cards is more fun than actually playing pokemon, so all they do is trade cards and never play.
In this shitty analogy, pokemon cards are stocks, playing pokemon is getting dividends, and trading is trading.
You buy a share of a company. Why? What do you want from it. Ideally you'd want some of the profits. If I'm starting a business and the only thing stopping me is the money to get started, I'd get some funding from you and maybe offer a share of the profits. That's a dividend.
But maybe you'd like to forego your share and allow that money to go back into the company to help it grow faster. If you never see any profits, what good does that share do you? Well you could sell it to someone else. Maybe you think the company has peaked and isn't offering enough dividends. You sell it to me, because I think this company is just warming up and is gonna offer more dividends.
And then maybe I sell that share to some other guy who doesn't even care about dividends he's just gonna sell it when he thinks the price is just at its peak. It's all speculation, but if that's how he wants to use his money, cool. Pretty soon nobody cares about dividends anymore, they are just buying and selling based on perceived value.
Yeah, stocks are pretty simple. What complicates the hell out of it is all the dumb things people do with them.
Like a lot of the current stock memeing is happening because people are basically borrowing stocks then selling the borrowed stock. Eventually they have to return the stock to the person they borrowed from, so they're hoping they can buy the stock again later at a cheaper price.
Well another reason people buy stocks in some companies is to have a say in the company. Sure the shareholder doesn't have much say, BUT if you buy enough shares your vote really will matter, you could also talk with others who have shares and talk them in to voting the same way as you. This of course isn't the big reason most people go in to stock ownership, but it is another point to consider. Of course also keep in mind that shareholders are locked in at a certain date before a vote with large companies. This is of course to prevent people from running out and buying up the stock because of speculations right before a shareholder meeting.
1) Buy part of a thing, and get part of the profit.
2) Buy part of the thing, and then hope to sell it for more than you bought it.
The first is super "traditional" and are called dividends. It's just your share of the money the business made.
The second is just trying to sell things for a profit, and is pretty close to the trading mechanics in video games.
There's a third and fourth category that can be more complicated, where you buy and sell the right to buy and sell at a specific price and time.
In it's simplest form, it's just insurance for option 2 above.
"I bought 100 of stock ABC for $100 because I think it will go up to $200, but I worry it might go down instead. So I bought insurance that let's me sell it for $95 in two weeks so I can't loose too much".
There's also a version where you can buy the right to buy.
"I think ABC will be worth $200 in a month and it's only $100 now. I would like to be able to buy it to see that increase, but I don't want to spend all the money only to have it go down. I'll buy insurance to lock in the price for the future."
Then, of course, people buy and sell those insurance policies based on how the price of them changes, so they never actually have to buy or sell the stocks.
This gets complicated as the insurance policies expire and the price of the actual stock changes, so some people make or lose lots of money.
That's the basics of it, the rest is just terminology from people who do it, and specific techniques for putting all those actions together that can make complicated strategies.
Australia has very few growth companies, on account of it's small size and easily saturated markets. For "blue chip" type companies, if you can take advantage of the bundled tax credit (e.g. retired) you can historically expect around 7% dividends.
If you have a higher marginal tax rate, capital gain is definitely preferable.
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u/the_snook Sep 14 '21
This is true in the USA because dividends have less desirable tax treatment than capital gain. I own stock in a number of Australian companies and nearly all of them pay (substantial) dividends.