That doesn't make sense. If I have to pay each share 5$, and I have given out 500 shares, but when it's time to pay out dividends 700 shares show up to claim them,then someone has to lose money right? Either I have to give 5$ to 200 shares that I never sold to people to begin with, or the 500 people who actually bought shares from me lose some of their portion to the extra 200. What am I missing if that's not the case? Surely that dividend money for those extra 200 shares has to come from somewhere?
A loans a share to B. Now A owns an iou, which doesn't have any voting rights. B agrees to pay A an amount of money equal to a dividend payment if a dividend is paid by the company.
B goes short by selling the share to C.
C owns a share of stock.
When the company pays dividends, C is paid and B pays A.
Alright, thank you. That makes sense. How do the voting rights work for share A? I was under the impression that brokerages loaned the shares out without the explicit knowledge of the original owners that it was happening. Is it just that people with margin accounts functionally don't get a vote?
You lose the voting rights as well. Users on brokerages typically agree to this when signing up. Some have opt outs but you may lose features being subsidized by the brokerage having the ability to lend shares.
Shares are worth the present value of their future dividend cash flow. Shorting doesn't change no dividend payment at all ever.