Ordinary shares that do not pay cash dividends offer more to the shareholders.
If listed firms do not pay dividend, they must have investment opportunities which offer high rates of returns. The shareholders may want to receive dividends and prefer reinvesting the proceeds elsewhere, but the boards might have different plan. The board compares the rates of return from reinvesting in new projects and paying dividends to the shareholders. If the return from projects is higher than the return investors are expected to earn by reinvesting the dividends, the board keeps retaining the profits until the opportunity cost of doing so is lower than not doing so.
Many newly listed companies do not pay dividends until much later when they exhaust most high return investment opportunities. Investors usually incorporate the future incremental cash flows from investment projects (of the company) in share prices. So share prices rise by the present value per share of the future cash flows from the investments.
Hence, non-dividend paying shares have as much value as those that pay dividend or have voting rights.
Other ways of earning through investing in non voting non divided shares are:
- Capital Gains i.e. stemming from investment strategies etc.
- Stock splits