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Many IT companies paid no dividends in their early years. However, they still had significant demand...

  1. Many IT companies paid no dividends in their early years. However, they still had significant demand from the market for an IPO and appreciating stock prices! Would the absence of dividends over many years but a high stock price seems contradictory to finance theory?
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Answer #1

A stock price of a company can be increased by the consistent growth of the company, its new investments which can guarentee cashflows, buy backs etc. Hence not paying dividend is not only a crietria for the appreciation of share price and this will not any FInance theories.

Many IT companies are averse to pay dividends due to the tax obligations, but instead they try to invest in new ventures, acquire healthy companies, and do buy back of shares. Becasue of these measures, they consistently grow organically as well as inorganically. Due to this growth the Market value of the company is appreciating through share price increase. Hence the demand for the IPO for such companies.

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