Reply #34: The falicy is your suggestion that 100% of the profits get passed on as dividends. [View All]

[JoePhilly]

I rarely use wikipedia as a source, by they have a relatively simple description of what happens to profits relative to dividends.

http://en.wikipedia.org/wiki/Dividend

"Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.<1> When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend."

The key word above is PORTION.

The next phrase you need to learn ... STOCK BUY-BACK. See, lots of companies HOLD their own stock. And from time to time, they do a BUY-BACK to acquire more. Again, wiki-pedia does a decent job of describing this (read the section titled PURPOSE).
http://en.wikipedia.org/wiki/Share_repurchase

So what does all this mean? As I said, your belief that 100% of profit becomes TAXABLE DIVIDENDS is FALSE. Corporations can DECIDE how much profit to pass on to investors.

And then, many large companies pay NO DIVIDENDS to stock holders. The very Rich LOVE THESE, because as you correctly note, those dividends get taxed. The rich don't want the dividend, they want the stock price to go UP. Which is what the BUY-BACK does.

Catching on yet?