A statement that you can’t spend profits, might surprise you! Individuals might think that this is a very odd statement and perhaps incorrect. It is a correct statement and should be made as an investing proverb to be used by any type of investor. Let me present my case.
Companies make profit by selling or exchange of their products or services. At a very basic fundamental level, this can be done by making those products or services at lower associated cost (or expenses). In the end, what we all want is to somehow convert those profits into cash so that we can spend it. Some might argue that this is just semantics of words. I say, it is not! If that were the case than how can we explain the fact that many times companies report profits that are more than cash flow from operations? Take a pause and think for a moment. How can we have more profit when we are not getting that much of cash transactions? In one of my earlier post Cash Flow is Important Financial Statement, I discussed how cash flow is what ultimately drives the value of any given business. Continue reading rest of this article…
High Dividend Yield – Good or Bad?
As always there is no simple answer and it depends on many factors. For me, it does not matter whether it is high yield or low yield. One of the key aspect that I look for in dividends is its sustainability.
Focusing on high initial dividend yield may be good for someone who wants to harvest only dividends and get out of the stock. This is a high risk preposition. The dividend cash you receive may or may not cover the stocks price fluctuations. Since I look for longer term, high yield is acceptable, if I am able to understand how the company is sustaining it. Let us take few examples.
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