A lot of people would tell you that receiving a dividend is the same as selling stock
That's deceptive at best, and an outright lie at worst
First of all, when you receive a dividend, that money comes directly from the company. Every shareholder is treated the same way, equally, proportionate to their ownership.
When you sell a stock, that money comes from the person who is buying it from you. Every shareholder is treated differently, unequally in this case, as prices you get can vary from second to second...
Second of all, undistributed cash on the balance sheet is not going to be valued at 100% by the marketplace.
It makes sense that cash on the balance sheet would be valued at a discount, since there is uncertainty as to when this cash would be distributed, uncertainty as to whether it could be allocated, and uncertainty as to whether it could be wasted.
When a company holds cash on the balance sheet, it is valued at a discount.
Paying a dividend unlocks that discount, and you receive 100% on the dollar for the dollars you receive.
If that cash still sits on the company balance sheet, and you sell stock, you risk actually receiving less than what that cash is worth.
Third, dividends are distributed from excess cash that management has determined cannot be reasonably allocated back into the business at a good rate of return.
Hence, it makes sense that excess cash should be distributed back to shareholders. Saying that "it's best to just reinvest it" ignores the reality that most businesses cannot intelligently reinvest ALL cash at High Rates.
By keeping that cash on the balance sheet, management is wasting resources and you end up with a large pile of unused cash that just gathers dust.
Note, this discussion is specifically debunking the myth that "selling shares is the same as receiving a dividend"
This myth is founded on the incorrect beliefs that 1) all companies can reinvest everything into the business (not true) 2) Cash that is gathering dust on the balance sheet is always valued at 100% (not true)
This discussion is not arguing whether companies should reinvest everything or not. It is specifically targeting the companies that have excess cashflow that they cannot reinvest at an intelligent rate of return. (Which is most companies in the world)
