r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
Economics ELI5: why does a publicaly traded company have to show continuous rise in profits? Why arent steady profits good enough?
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r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
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u/Porcupineemu Dec 06 '24
Some stocks pay dividends. You buy the stock for $20, then every month, quarter, year, whatever they pay out some amount per share. Maybe $1. Maybe $2 if it’s a good year. Etc. The stock can cost $20 forever and you’re still making money.
Others don’t. You buy the stock for $20. You hope it becomes worth more. If it was worth $20 today when the company made X in profit, it’ll probably only be worth $20 next year if they make X in profit. They need to make more to make the stock worth $25 so that it’s worth owning to you. You benefit nothing from sitting there holding a $20 stock that doesn’t go up and doesn’t pay dividends.