that’s not necessarily the case. There are a LOT of very profitable companies that NEVER pay dividends, such as Amazon, Google, Meta, etc. Shareholders don’t get mad at them, at least not for not pay dividends. Shareholders get mad when their expectations are not met. So, if a company has historically paid, say, a 4% annual dividend, if they suddenly decide to not pay a dividend, or cut it to 1%, that is when shareholders get mad and dump the stock and cause it’s price to decrease. So, as I mentioned above, some struggling companies will continue to pay dividends even when, financially speaking, it would make much more sense to use that money to pay off debts, invest in capital improvements, infrastructure, or whatever else.
Your description is out of a economics book. Modern businesses don’t work that way. Everything they do is a twisted chain of money movements to benefit them.
Take Apple. It’s currently sitting on about $50 billion in cash and short-term investments (as of 1Q 2025). It’s also sitting on $108 billion in debt (as of 2024). (Amazon has ever more.) Why? Apple claims that much of its cash is generated overseas and repatriating it would - horrors! - be subject to taxes. You can’t want poor little ol’ Apple to pay taxes, can you? Actually, stockholders saw the piles of cash and didn’t care about anyone but themselves, so they made demands. Apple found a workaround. Over the past decade interest rates have been so low that it made fiscal sense to borrow money to pay out in dividends and buybacks.
Most of the world’s economy, from banks to businesses to governments, runs on loans. They are the lubricant that smooths out peaks and valleys. Lenders seldom go bust these days because they are usually extremely cautious in whom they lend to. Apple is an exceptionally safe borrower thanks to all that sitting cash. Riskier businesses can find themselves locked out of loans and that can spiral down to extinction.
What does all this have to do with the stock price? As I said above, stock prices are opinions about the future of a company. Stopping dividends is a signal that a company is in a crisis with a poor future outcome. Trying to raise money by a new stock offering is one solution. Some people might see the fall in stock price as a sign to invest big at the bottom; others may see it as a desperate measure that could lose them everything. The myriad of businesses that a widget company needs to deal with - both in buying raw materials and selling finished product - also plan their needs out into the future and are loath to deal with a company that might not have a future. (The uncertainly that tariff talk always mentions is one giant example of why the future is so vitally important.)
Opinions are not emphasized sufficiently in talk of profits and losses. Yet they underlay every aspect of a business and find their most tangible expression in the stock price, which is more public than what’s going on in the background. Businesses these days are closer to celebrities, dependent on the way their publics view them, than on pure dollars and cents.
Not even to always benefit the company. How many times have vulture capitalists taken control, sold the bits off for cash, and walked off with bulging pockets leaving behind a bunch of people out of work and no widgets for the rest of us. Killing the silver goose doesn’t matter to them and not every company can get to golden goose status – too rich to attract these jaspers.
Late capitalism kinda sucks.
Not sure how that’s relevant to the question you asked. And although firms that take over companies sometimes issue stock, they are more likely to take the company private so that all the profits made by their predation goes to them. I think you’re conflating two separate issues.
This was the point of Barbarians at the Gate. The executives in RJR Nabisco figured out how lucrative the tobacco business could be - up to then, they had let the money flow on things like paid celebrity golfing with clients, fleet of business jets, etc. to avoid reporting excessive profits. The plan was to take the company private at a ludicrously low price, because shareholders did not grasp how rich it could be, and pocket the rewards. But someone else figured it out and a bidding war ensued.
But similarly, A&P and Greyhound for example had been carrying their real estate holdings on the books, according to GAAP (generally accepted accounting principles). But by the 1980’s, that downtown real estate was worth a heckuva lot more than in the 1930’s, raiders just hoped to buy all the shares for cheap before the regular shareholders figured it out - then by owning the whole company, could sell off those assets for big profits. This is often why companies prefer to carry debt. A company that owes a (manageable) debt is less attractive to anyone who would like to buy out all the shares and sell the pieces.