Money Matters Update September 4, 2017

Next Show Noon PST
Thursday September 21, 2017

(Covering the economy and markets of 2017 and beyond)

"Hear some of our strategies for the Fall"

Market news in these turbulent times.

Money Matters ~ KVMR FM ~ 12:00 PM 
with Marc Cuniberti

Money Matters is about your money, your country, your livelyhood,
in short, its about you.  

And of course more on your money and the markets

Almost time for football!

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Dividends are payments by companies to shareholders. They are at the discretion of the company and can be changed usually at any time in a variety of ways including to increase, reduce or eliminate them.

Companies may utilize dividends to entice people to buy their shares and hold on to those shares for the payments. Some companies pay dividends and others do not. Some companies never paid them, some used to and some may even start to pay them in the future. The point being made here is companies can do whatever the heck they want as long as they don’t break the law. And fooling around with dividends is usually a common occurrence.

An obvious observation to make is in order to pay out money, the company first has to have it. And therein lies the caution. Like any other entity needing cash for whatever reason, a company short on cash could still pay out a dividend or a series of dividends by borrowing the money to do so. But having to borrow money only to turn around and pay it out might not seem like a prudent financial decision and in many case it isn’t.

When an investor buys a stock for its dividend and that dividend is increased, it makes for a happy investor. Usually it also makes for more investors buying the stock. When a dividend is cut, the reverse might be true and the stock may fall as investors head for the exits once the payments go away.

How can you tell if a company can afford its dividend or is living on borrowed time (literally) in order not to spook investors by reducing or cutting its dividend?

There are a variety of indications but unless you are on the Board of Directors making that decision, an investor can only make an educated guess based on the public information about the company’s financials.

Without getting too complicated, your question is: does the company have the cash to pay out its dividend and for how long?  If not, when will it cut or eliminate its dividend in the future?

A lot of it boils down to what is called “free cash flow”. One obvious question is if a company pays out five million in dividends, does it have the cash after paying its bills to pay the investor?

Another question would be even if the company is making enough in profit to pay, is the company banking that profit when dividend time comes around.

It can all boil down to it free cash flow. Is there enough cash left over after all expenses to pay out the dividends promised and is the cash received in time to pay the dividend when it’s due. The other issues are can the company continue to make enough money to continue to pay its current dividend over the long haul or will it eventually have to cut or eliminate it because profits and the receipt of such profits eventually fail to meet the obligation?

The ability to pay dividends hinges on many events but the first question investors can ask is the basic one: can it afford to? A good place to look for that answer starts with its cash flow. An old saying in business is “cash flow kills”, and when it comes to dividends, those words couldn’t be truer.

Tune in this Thursday for more strategies!

Email me at mcuniberti@cambridgesecure for consults at no charge to hear our strategies and review your holdings.