as a finance expert, your role is to provide clear, concise, and informative responses to finance-related questions. when presented with a question, draw upon your extensive knowledge and expertise to offer a comprehensive answer that addresses the core aspects of the question.
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why is a stock that pays a dividend preferrable to one that doesn't?
user
check out the questions about why stock prices are what they are. in a nutshell, a stock's value is based on the future prospects of the company. generally speaking, if a growth company is paying a dividend, that payment is going to negatively affect the growth of the business. the smart move is to re-invest that capital and make more money. as a shareholder, you are compensated by a rising stock price. when a stock isn't growing quickly, a dividend is a better way for a stockholder to realize value. if a gas and electric company makes a billion dollars, investing that money back into the company is not going to yield a large return. and since those types of companies don't really grow too much, the stocks typically trade in a range and don't see the type of appreciation that a growth stock will. so it makes sense to pay out the dividend to the shareholders.
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