Investing Cash Flow: The Purchase or Sale of Long-Term Assets
Posted on August 13, 2014 | Dividend Investing
In the previous article of this series, we examined operating cash flows, which measures day-to-day profitability. This month we move on to the next primary section of the cash flow statement: cash flows from investing activities. Investing activities pertain to the acquisition or disposal of non-current assets (investments) and are usually classified as either capital expenditures—money spent on items such as new property, plant or equipment—or monetary investments such as the purchase or sale of government bonds or stocks of other firms. It is important to remember that, as with all cash flows, an investing activity only appears on the cash flow statement if there is an exchange of cash during the specified period.
Cash flows from investing activities are separately reported because they tell whether the company is investing in assets that are expected to result in future profits or whether it is disposing of long-term assets already owned. It is important to note that investing activity does not take into account the issuance or redemption of company’s own stock or debt.
Mergers and Speculators, Plus the August Monthly Report
Posted on August 9, 2014 | Dividend Investing
We’re more concerned with fundamental factors such as dividends and cash flow than day-to-day price changes. In the August Monthly Report, which is now online, we give you some updated insight into how companies have been spending their cash. We also give you more insight into the cash flow statement.
What you won’t find are any portfolio changes. We simply could not find a quality company trading at an attractive enough valuation to warrant making a change.
Downside Volatility Reappears
Posted on August 1, 2014 | Dividend Investing
Downside volatility reappeared yesterday as the major indexes fell around 2%. It was the second-worst day of the year for the Dow Jones industrial average and the third-worst day of the year for the S&P 500 index. More importantly, it wasn’t unusual. Daily moves of 2% have occurred in a variety of bull and bear markets throughout market history. It just feels unusual because the markets have been so relatively calm this year.
Operating Cash Flow: Measuring Day-to-Day Profitability
Posted on July 31, 2014 | Dividend Investing
In the June DI Monthly, we introduced the statement of cash flows, which shows how much cash a company is generating through operations as well as through changes in company assets, liabilities and equity. This month, we examine the calculations behind cash flow from operating activities, which is a measure of the amount of cash generated by normal business operations through revenues from selling goods and providing services. It excludes activities classified as investing activities or financing activities.
Cash flow from operating activities (also known as operating cash flow or cash flow from operations) has a very simple objective-to show whether a firm’s day-to-day operations generated or depleted cash. If net cash flow from operations is negative, it means that the company is spending more cash than it is generating in producing and selling its goods and services. If it is positive, the company is generating more cash than it is spending on its day-to-day operations.
Lots of Results News to Share
Posted on July 25, 2014 | Dividend Investing
We have much earnings news to share with you this week, so we’re going to keep our opening comments brief. In general, earnings have been good, but not great. There were some positive surprises, but also some misses too. Mostly, the DI companies have been performing as we expected them to.
Wall Street is very focused on short-term results. As investors, we’re more focused on the trends. We want to know how a business is evolving and whether the change is in a positive or negative direction. Sometimes a quarterly report can be enough to give us reason to reconsider our position in a stock; more often, however, it is a trend built over several quarters that will alter our opinion.
Where Is the Cash Going?
Posted on July 18, 2014 | Dividend Investing
Ned Davis Research sent out a chart this week breaking down how S&P 500 companies spent their cash for the four quarters ending March 31, 2014. The largest amount was spent on net investments ($690.2 billion). Capital expenditures came in second at a record $666.4 billion. Share repurchases ranked third at $554.1 billion, which Ned Davis Research says is the largest four-quarter amount since the period ending December 31, 2007. Dividends ranked fourth at a record $344.3 billion.
Keeping Things in Perspective
Posted on July 11, 2014 | Dividend Investing
This morning’s headlines proclaimed things like “S&P Suffers Worse Week in Months.” The large-cap index did incur its worst weekly performance since April, but this week’s loss was only 0.9%. A weekly decline of 1% or 2% is pretty normal. It just feels worse because of the market’s upward march.
Mergers, One Deletion and the July Monthly Report
Posted on July 3, 2014 | Dividend Investing
The July monthly report, Dial “M” for Merger, is now available. In it, we discuss the five pending mergers DI stocks are involved with…
Wheeling and Dealing
Posted on June 27, 2014 | Dividend Investing
Mergers and acquisitions seem to be the market theme this year. Corporations flush with cash are opening their wallets in hopes of gaining market share and enhancing their competitive position. According to Forbes, global mergers and acquisitions activity deals have surpassed $1.75 trillion year-to-date, the highest level since the first half of 2007, before the Great Recession.
DI Companies Are Playing ‘Let’s Make a Deal’
Posted on June 20, 2014 | Dividend Investing
We have news of another potential merger in the DI portfolio. At the start of this week, Medtronic Inc. (MDT) reached an agreement to purchase Covidien Plc (COV). Details about the merger can be found in the News and Notes section below. The announcement has made headlines less for the merger itself, however, and more for Medtronic’s move of its corporate headquarters to Ireland.
Ireland is known for its low corporate tax rate and this fact has been brought up in articles about the merger. Due to the higher scrutiny being given to corporate tax issues lately, we don’t know if this will present a hurdle for Medtronic or not. There are business reasons to justify the merger as well. Nonetheless, Ireland’s tax rate is what is making the headlines right now.
If the merger is completed, the tax status of the dividend would change. Medtronic’s dividend would go from being domestic to foreign. We are waiting for Medtronic to give guidance on the tax treatment of the dividend before explaining how the change will impact U.S. investors. We can tell you, however, that the United States does a have a tax treaty with Ireland.