Question:
What do you think of Sirius Radio? Why should we pay for radio when it is free? However, once I got it in my car, I almost never listen to regular radio any more. I thought about cancelling, but then I forgot to call; I kept listening, and I’m still paying for it. They have to be making money right?
Answer:
We see Sirius XM Radio, Inc. (NASDAQ: SIRI) as a three-legged dog with one eye named “Lucky.” In 2008, Sirius merged with XM Radio, and since then, the company is struggling to hang on. It first reported a profit in 2010 of $0.01 per share. Currently, we believe the stock is pure speculation. We do not see much future for the company, as many lower cost alternatives to subscription radio exist. While Sirius XM has shows, only a limited amount are exclusive to Sirius. As we’ve said before, content is king. We do not recommend Sirius XM.
Question:
Where do you stand on AT&T? I own a pretty good bit and for a while now.
Answer:
We are first concerned by what you mean by “a good bit.” Regardless of how much we like a stock, if it is more than 5% of your portfolio, you need to trim your position. Otherwise, we find AT&T, Inc. (NYSE: T) to be a good holding for income investors. It pays a good dividend of $1.75 per share, which is well covered by cash flow. The sector did very well in 2011 and 2012. We do not expect the same type of growth in 2013, but the company should still do well.
Question:
I do not understand why companies have to submit estimated earnings reports. It makes no sense to me for a company to do this. If it tries to maximize earnings, and then reports what it did earn, why would that not satisfy everyone? Why are predictions necessary, since missing the estimate seems to cause so much concern in the market? It introduces another place for possible manipulation, or at least the suspicion of manipulation. It doesn’t seem to me to have any real information that knowing the actual results wouldn’t satisfy better. Just explain the estimated earnings business.
Answer:
From a macro perspective, investors shouldn’t have to worry what a company does quarter per quarter. However, The Street does because we work in a micro-perspective society. Company earnings help you estimate what a company is worth; figure out how well the company is operating; determine how management is running the company, and in the end, earnings are what you own as a shareholder.
When we look at a company’s earnings, we look at how a company is growing, and if it is hitting its targets. We try to determine if it is growing as we expect it to. Earnings help us value a company’s worth and determine if it will continue to perform as we expect it to.
It is often the company’s future outlook that the markets react to. For us, we look at free cash flow, as what a company earns usually funds future growth.
Question:
I think you sold BB&T a while ago, when you cut back on your financial sector holdings. I still like BB&T and was thinking of adding to my position. Is now a good time to buy, or should I wait for a certain price.
Answer:
BB&T Corporation (NYSE: BBT) is a regional bank. Before the meltdown in 2008, we thought it had solid growth and was potentially a good take-over target. The company went through a lot of write-downs. Currently, the bank is in a solid position, and recently increased its dividend to 3%. If you are looking to add to your banking position, we recommend that BB&T be on your short list. We believe the southeast region has the potential for growth.
Question:
I often see that companies post a quarterly or yearly loss, but then raise their dividend. I am confused. Isn’t this kind of backwards from the way it should work?
Answer:
It doesn’t happen as often as you think, but when it does, it happens through accounting. For example, a company may have a non-cash expense, such as an asset it writes down, which creates a loss. Because the company did not outlay any cash, it creates an accounting loss. It is very similar to how some people can have positive cash flow on a rental property, but a loss on taxes.
What you want to avoid is a company that borrows to pay its dividend by issuing new stocks. In that scenario, we do not believe the dividend is sustainable.
At Henssler Financial we believe you should Live Ready. If you have questions regarding your investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
