Stock dividends are ultimately, the by product or investment return that shares provide to their respective investors. When a company provides an initial public offering, investors will purchase a share of the company. This share of the company is perceived as equity that an individual might have within the wealth of the overall corporation. As the corporation grows and develops and starts making significant capital or revenue, the value of its stocks on the share market increases and hence, the respective shares that its investors own also increase (Stys & Malmgren, 2015). Up to as many as two occasions each year, normally at the end and mid points of the financial year, a company will pay out dividends to its respective investors as a result of the capital gains. Investors partly own the company and are therefore have the right to receive some of its income.
Supply and demand essentially shapes the culture and success of the company. As a greater demand for shares and products of companies or industries increases, their stock prices increase on the share market and this results in a greater revenue and overall capital growth and cash flow for the company. As stock prices increase and the company becomes more economically viable and financially stable, it is able to pay out a greater dividend. Greater levels of capital result in more wealth for the investors that own part of the company (HTMW, 2013). Therefore, dividends for each segment of the financial year increase and also allow investors to re-invest dividends in more shares or to capitalize from the growth in other ways. Greater demand allows such companies to increase their respective prices as their products such as shares become more valuable and highly desirable. Much like the retail industry, companies can afford to increase the prices of their products if they know that they are desirable, in short stock and will indefinitely be sold regardless of internal and external supply demands (Stys & Malmgren, 2015).
Furthermore, dividends do not necessarily provide investors with significant or increasing wealth. Supply and demand can inevitably shift in its focus and the wealth that it provides to customers and shareholders. Lower demand for products such as shares will also change the amount of dividends being received by clients, customers and shareholders overall. It will decrease dividends as the company is not receiving a higher level of cash flow or greater capital as a result of lower sales of products. Lower numbers of new investors reduces the ability of a company to gain capital and a substantial return on investment (HTMW, 2013).
There are also other means by which supply and demand influences stock dividends. Greater demand for products and shares raises inflation, which can potentially strengthen or even weaken an economy and therefore, respective dividends and shares within a company. When inflation increases, more people are wiling to sell down their shares in return for greater return and interest in products (HTMW, 2013). There is also the understanding that products will become too expensive and less favored in a growing or weakening market. Lower inflation can increase buyers’ interest in more affordable shares and company products however it does not necessarily result in a stronger economy or greater capital for a company (Stys & Malmgren, 2015). Furthermore, supply and demand is particularly pertinent in the retail industry and as such, a stronger retail industry can inspire buyers to purchase more shares in order to gain greater capital worth and to develop a basis in which future capital worth can be sustained and subsequently raised.
Therefore, as specified in this paper, supply and demand has a significant impact on the strength and influence of stock dividends regardless of the company, industry or respective economy globally.
- HTMW. (2013). The Power of Supply and Demand on Stock Prices. How the Market Works, Retrieved from http://education.howthemarketworks.com/beginners/choosing-investments/the-power-of-supply-and-demand-on-stock-prices/ Accessed on 1st October 2015.
- Stys, M, Malmgren, H. (2015). The Influence of Supply and Demand on Stock Market Valuations. WS Wealth Management, LLC, Retrieved from http://wswealthmanagement.com/the-influence-of-supply-and-demand-on-stock-market-valuations.html Accessed on 1st October 2015.
