In one version of stock market history, the use case for dividends died in 1961.
That was the year when two future Nobel Prize-winning American economists, Merton Miller and Franco Modigliani, penned an article in The Journal of Business titled ‘Dividend Policy, Growth, and the Valuation of Shares’.
The article advanced their theory, developed a few years previously, that the market value of a company is confined to the net present value of its future earnings and underlying assets. All things being equal, the pair argued, capital structures are irrelevant. Neither the use of debt, nor share issuance, nor profit reinvestment matters to price.