Everything About Finance

There are several ways in which you could play dividend stocks. At a time when no one is really sure whether we have overcome the economic downturn completely, it is a good idea to focus on dividend yield rather than speculate on possible price momentum which may or may not happen.

When you select a high dividend yielding stock for investment, look for the following factors as well:

Consistency: Consider companies that have been consistently giving dividends for the past several years. If it a one-time mega dividend, then it may not be repeated and you may want to look for other stocks.

Increasing Payouts: Check whether the dividend payouts have been increasing steadily over the years. At least when the economy is good, the dividends should definitely show an increasing trend.

Cash in Hand: Even if a company announces a dividend, it needs to have cash in hand to handle the payouts. So research the cash flow of the company. If it is cash rich then chances of future dividend payouts are high.

Prospects of the Company: You need to verify the growth prospects of the company. Is it likely to perform well in future? Is the business recession proof? Pharmaceutical companies are fairly recession proof and you can look at some good dividend yielding stocks like Pfizer from that pack. You can also look for market leaders in the respective businesses. Even if the dividend yield may not be the best, if a dividend reinvestment is going to get you handsome returns several years down the line, then it is worth investing in, provided you are in it for the long term.

Be a contrarian: You can also take a contrarian view and invest in beaten down stocks which are likely to bounce back quickly when the recession is over. By paying a low price for these stocks, your dividend yield would be high and once the stocks rebound, you can sell them for a neat profit. A perfect example is 3M.

Sector Orientation: Look for sectors that have not been really hot favorites but have been paying out steady dividends. A highly regulated sector like the utilities sector may have stocks that may not have fantastic growth but are good dividend yielding stocks. But be sure not to put all your eggs in one basket. You can find high dividend yielding stocks in multiple sectors. And choose the sectors about which you have enough knowledge about their business.

So, the next time you plan to invest in high dividend yield stocks, look for these additional parameters as well while filtering for likely candidates.

Covered call option is for those who believe in the maxim ‘Slow and steady wins the race’. Though you may not make huge profits on any single day, you would undoubtedly make steady profit from the stocks that you own.

The greatest advantage of covered call is that you are limiting your risks.

Let us see how you can write a covered call:

First, you need to get clarification from the brokerage service whether they offer covered call options for your stock.

In case, your present brokerage service do not cater to covered call, you need to find a brokerage service that offer you covered call option, and get your stocks transferred to them.

All your stocks may not be eligible for covered call. Only top cap stocks are eligible for covered call. To write a covered call, you will require 100 shares for which you want to write covered call.

The most important aspect is deciding the strike price for covered call. You need to maintain a balance between risk and the profit. The balance between high out the money and at the money strike is crucial to earn respectable margins. While at the money strike may be risky, it would earn better profits, whereas, high out the money is safe but has low margins.

Ideally your aim should be to have the stock and at the same time keep on pocketing the increase in the value of the stock. The price should not be more than the strike price of call option.

Next, you have to decide on the expiry month. If you choose a further month, then the call will be costly, but you would be selling call and earning premium. But, it should be remembered that when you have very long option period, you are providing time to the buyer the option of ‘in the money’.

While selling, you need to sell with ‘sell to open’. When you do this, your account gets credited instantly. This will enable you to earn the entire premium on the stock.

In case the price of your stock is heading north, and is almost reaching the strike price, then you place ‘buy to close’.

In the worst situation, your may have to sell off your stock of 100 shares if the stock is called away.

December, the festive month of Christmas began with a big bang. The markets were surprised by the announcement by Exxon (XOM) to buy out Energy (XTO) for a huge $41 billion.

This merger of Exxon Mobil Corporation with XTO Energy will strengthen Exxon’s position in the field of developing oil and natural gas resources.

The financial implication of this deal on the shareholders of XTO is that for every share of XTO, will get 0.7098 share of XTO, which is about 25% more in value. This is kind of Christmas gift to the shareholders of XTO. The figure of $41 billion is arrived at taking into consideration the debts of XTO worth $10 billion.

The merger will benefit Exxon too. The greatest of strengths of XTO lies in its expertise in the technical field as well as its resource base. XTO has some of the best skilled employees on its pay roll.

Exxon Mobil prides on its strength of highly motivated and advanced R&D, financial strength, its strong presence in the global market along with its operational abilities.

When two stalwarts of business has decided to marry, this will be a marriage of two minds for the customers based in United States as well as across the globe, as the fruits of increased capacities of gas and oil resources would be available to all the customers.

This is good news for the market too, as it will give much needed impetus to the staggering US economy and increase the scope of job opportunities in the United States. It will also increase the investment of the US in clean gas resources.

ExxonMobil has global presence in several countries such as Canada, Poland, Germany, Argentina and Hungary in addition to United States. When XTO’s resources of tight case, shale gas, shale oil and coal bed methane totaling to around 45 trillion cubit feet will be added to the existing capacity of ExxonMobil and make it a global giant in natural gas resources.

It is expected that the legal and financial procedures related to the merger will be completed by the second quarter of the year 2010.

While we all eagerly wait for the Christmas celebrations and the New Year bash but this time of the year also brings a lot of worries and headache as far as managing your taxes are concerned and therefore planning your investments for the year ahead, that is the year 2010. If you don’t belong to the core financial sector then it is highly unlikely that you can train your self, to perfection as far as the above-mentioned two topics are concerned. Though we would recommend that you start doing research on your own in order to familiarize your self with all the nuances of the trade and possibly the trade secrets, if possible and available and provided you can understand the nitty-gritty of the financial sector. It is here that professional firms dealing in the financial sector, mainly planning your investments and managing your taxes are required to be hired in order to provide professional services / consultancy and thereby saving your headache so that you can go ahead and enjoy your Christmas and New Year (in fact you can relax and keep celebrating the entire year once your financial worries are taken care of).

This is where TradeKing comes into picture and into your life, business and there by planning your financial needs and requirements are taken care of with aplomb. There are various reasons why you should and can choose (and stay at peace, mentally) TradeKing, just to name a few; they have a very professionally qualified staff, there customer service is the best that you can expect to get, in case you start comparing TradeKing with others and their prices are very competitive, these are sufficient enough reasons for you to start your tax planning and investments for the year 2010 with TradeKing.

TradeKing offers a very professional and efficient tool and instrument to its investors called Maxit. With this tool one is able to plan, prepare and solicit one’s Tax Management and is also able to invest in a well-planned manner leading to sufficient gains, financially. We therefore recommend that you start using Maxit ASAP (as soon as possible) in order to avoid headache and problems, as far as your finances are concerned and relax and lead a tension free year (2010). It is therefore not surprising that all your financial problems are solved in a jiffy provided you are using Maxit.

Christmas is round the corner and investors were hopping for a Black Friday that would bail out the retailers.

As predicted, the biggest winners came to be discounters and the department stores. Investors preferred to move in with Wal Mart( WMT), Target(TGT), Macy’s(M), Nordstrom(JWN), while carefully ignoring specialty stores such as Abercrombie & Fitch( ANF), The Gap (GPS) and similar other specialty retailers.

As per the statistics given by National Federation of Retailers, the market saw a large turnout of 195 million people, up by 13% as compared to the same period in 2008. However, the spending were about 30% less as compared to last year.

In totality, the retailers went down and the investors received Cyber Monday discounts on big retail stocks.

The sales were driven purely by deep discounts and this worked well for Target and Wal-Mart. Consumers did change focus from necessities to accessories and apparel and this indeed is considered a positive indication.

Macy’s stock is a good buy as it has better inventory management in place and is one of the trendsetters in clothing. As compared to its competitors such as Sears(SHLD) and J.C. Penney, the stock is trading at a much cheaper price.

The fourth quarter results for Macy’s are expected to be better and this will further make it an attractive stock. The earnings per share for Macy’s are better than the market predictions.

Sears will fare well too, as it has done better when compared to its performance in the last year.

The economic recovery can be felt due to the upward trend of the stock market and also for the better sales of the luxury brands during the weekend.

The best stock would be Nordstrom. It offered minimum discounts, yet it achieved better volume. The Price Earning ratio is 15 and has attractive return on equity of over 25%.

The only unattractive buy would be Saks(SKS) which is expected to be in red until 2011. The current years sale were down by 15%

Specialty stores are showing slow turnover growth, however The Gap fared better as compared to Abercrombie & Fitch. Hot Topic (HOTT) too reported a 8% lesser sales.

The markets are still largely driven by discounts and this trend was seen on Internet marketing sites as well.

Just as the world was recovering from the global economic meltdown, the news of Dubai’s inability to honor its debt of $59 billion sent shock waves all across the world. The shock came as the Dubai government denied any support to the conglomerate to meet its financial obligations.

Dubai Stock market opened lower on the second day and were down by 6.41%. Abu Dhabi stock exchange was down by 5%, totaling to index shedding of over 13% in two days.

The global sentiments were reflected in large sell out by foreign investments. Since they were no takers, few could exit market on Monday, and the remaining continued to try to sell off their stake. It is expected that once the markets reopen after the national holidays, the foreign investors will try to sell off once again and this will further lead to markets opening lower.

Investors have lost confidence in Dubai when the finance ministry made an official announcement stating that the government did not intend to guarantee the any debts by Dubai World.

Meanwhile, Dubai World gave statement regarding restructuring the loan of $26 billion and to change it’s repayment terms.

The top losers on the Dubai’s bourses were prime real estate stocks. They lost about 9.4% on Tuesday alone. Close to real estate were finance and investment stock which retaliated by shedding 8.3% in value.

Emmar, the renowned property developer lost 9.9% value, while Dubai Islamic lost 9.8% in value.

Talking of Abu Dhabi, the real estate stocks were down by 9.8% and the banking stocks witnessed a loss of 6.2% in its stock value.

The stock exchanges in Qatar and Kuwait reopened on Tuesday after the Eid holidays. The impact was felt greater on Qatar, which lost about 8.3% at the closing time, while Kuwait fared better and lost just 2.7%.

The impact of the current scenario would have long term implications not just for Dubai, but for the entire Gulf market and the region will see a slow down in growth at least in the near future as foreigners would be reluctant to invest after seeing the Dubai Government’s approach in the whole issue.

In the history of surprising mergers and acquisition yet another story has been added, about Berkshire Hathaway (BRK)’s acquisition of Burlington Northern (BNI) and shipping/transport stocks. I surely think you must have heard of it by now. Or, you can certainly visit the link mentioned here for detailed information: After BNI, what’s next for Buffett / BRK? .

But in a nut shell, a somewhat surprising acquisition was made by the super investor Warren Buffett and his investment company (BRK), by acquiring BNI. Burlington Northern (BNI) is a railroad stock which was already being held by BRK as a minority. What we can say as of now about this acquisition is that no matter what Warren does as a business move is considered as a smart move by the other investors. Thus there is a lot of buzz around this acquisition at the moment.

Warren Buffett has been increasing his energy plays in recent years, both in the U.S. and abroad. He has said repeatedly that he likes energy and power. His chief asset in the U.S. is Mid-American Energy, a major utility company whose CEO is often touted as one of the eventual successors to Buffett at the helm of Berkshire.

Here is some facts on Burlington Northern and the U.S. railroad industry generally. This old-fashioned form of transportation has been modernized in recent years, with more-efficient trains, fewer employees and higher profit margins.

The industry also bills itself as a more ecofriendly transportation alternative to the congested and outdated highway system. Everything about this deal is big–from the price tag (Buffett’s largest ever) to the scale of the company’s business.

Rail accounts for 43% of the freight hauled across the U.S.

Burlington Northern route miles: 32,000, enough to crisscross the U.S. about 10 times. On average, the company has 220,000 freight cars chugging at one time.

It is quiet understandable that a lot of you are fans of the transportation industry and the same is reflected in the trading volumes of Dryships (DRYS) and some other transport related stocks. But the good question is what makes the deal so good. To answer that I would start with “Green”,  the American legislation that is about to hit the trucking on the American roads hard. While on the other hand the RR’s are very much fuel efficient, compared to the trucks running around.

But in case you ask me what’s the flip side of the story? Then I would have to say that BNI currently hauls primarily coal as of now. So what that means is presently we have domestic fossil fuel wrapped up well in a green wrapper. Having that heard whether to love or hate the deal is certainly your choice, and never the less but is an issue inviting and open enough for a good debate on it. But to me as of now the deal stands to be profitable, from where I happen to see it. Post the deal, many are turning with hopes towards the Dow Jones Transportation related index. The ray of hope looks like coming out from GATX, CSX, and the Union Pacific (UNP).

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As far as the bailout is concerned, I feel that it has done everything that it is supposed to do except… Create new Jobs! It has been successful in keeping existing jobs in the public service sector, but what needs to happen is that these Federal projects need to stimulate the private sector to start hiring again.

Having said that lets see what it has done so far.

A Good sign: The political action committee of Goldman Sachs Group Inc. stepped up its donations in the third quarter of this year after the New York-based investment bank paid back its U.S. taxpayer rescue funds.

Another one: $62 million worth of bailout money shoveled into  Chrysler and GM is that taxpayers can expect to see some of that money paid back.

In early September, the government placed mortgage guarantors Fannie Mae and Freddie Mac into conservatorship, saying the move would lower mortgage rates, stem foreclosures and help relieve the financial crisis.

Taking over Fannie and Freddie did protect two institutions that are vital to the nation’s mortgage market. But it has explicitly exposed the government to trillions in losses. Fannie and Freddie insure about half the $11 trillion mortgage market.

In late September, Treasury Secretary Henry Paulson asked Congress for $700 billion to save the nation’s financial system.

The good news is that there hasn’t been a single major bank failure since TARP was launched. But the sudden changes in the plan have added volatility to the nation’s financial markets and hurt the Treasury Secretary’s credibility.

How have we fixed the broken incentives at banks?

Thank goodness we’re getting tough on the banks that were reckless! And then, it turns out Mr. Feinberg did the banks the favor of removing the risk from a large portion of their compensation: he boosted base salaries at these firms, fearing top employees might leave. For those unfamiliar with how Wall St. compensation works, the variable portion that can be cut on a whim without recourse is the bonus–by increasing the salaries, he increased the money that is guaranteed. Regardless of the aforementioned actions, we still don’t have a good answer on how firms will tie their own fortunes, in the long term, to that of their employees.

After a well-known fund lost money in mid-September, assets in money-market funds dropped by $400 billion in two weeks. Money funds help provide loans for the day-to-day operations of large companies. So with investors fleeing these funds, many companies would have had to pay more for short-term loans or not gotten them at all.

The move quickly reversed the run on money funds. What’s more, it hasn’t cost the government a penny. In fact, it has actually made money for the government. Nearly every money-market-fund provider signed up for the insurance, which has generated some $750 million in premiums paid to the government since the program started.

What have we done about “Too Big To Fail?”
History will dictate that, once a firm is large enough, it has to be saved–by continuing to pay millions and keep management, you’re giving no disincentive for future firms. The government needs to put stiff rules in place that will prevent institutions from getting too big, and breakup the ones that exist now.

President Obama has offered community banks a deal:  If they’ll increase their lending to small businesses, he’ll give them cheap capital to do it.

Under the president’s plan, banks with less than $1 billion in assets will be able to get new capital from the U.S. Treasury Department’s Troubled Asset Relief Program at a 3 percent dividend rate. That’s a significant savings compared with the 5 percent rate now available to banks that tap TARP.

To encourage banks to repay the loans in a timely fashion, the dividend rate will increase to 9 percent after five years.

To access this capital, community banks must submit a plan explaining how they will use the money to increase lending to small businesses. They also will have to file quarterly reports on their small business loans.

Lets hope that this encourages banks to convince businesses to take loans and start hiring again.

Fist let me start by saying that I personally hold solar stocks:

• Suntech Power Holdings (STP)

• LDK Solar (LDK)

Having said that, here is a novel approach, that I read about, to valuing solar stocks.

Given the inherent nature of the solar manufacturing industry (i.e., manufacturing a commodity product used to generate electricity), as well as the highly leveraged balance sheets, we believe that enterprise value (EV) multiples (instead of price to earnings) should be used for solar stocks.

Additionally, solar industry multiples should be compared to a mix of industrial, infrastructure (selling product/services to utilities), utilities and other forms of alternative energy sectors (such as wind and smart grid/metering).

You could be using EV multiples because the majority of solar manufacturers have leveraged balanced sheets, with debt-to-equity ratios in the range of 90% to 100%. You could also use return on net assets to compare solar stocks with each other as well as to compare them with other comparable industries (mentioned above).

This is critical since solar manufacturers are involved in making a commodity product (i.e., poly, cell, module, systems) that generates a commodity-type output (i.e., electricity); and, since there is little differentiation, it is then prudent to focus more on “asset” management as a means of differentiating companies.

There is little technological investment and differentiation among solar companies. To help illustrate this, the research and design commitment by solar companies is less than 5% of total revenues, versus double-digit percentages for tech-related companies!

Thus, investors are encouraged to separate good “asset” managers from average ones by using return on net assets.

Leading analysis indicates that, since solar stocks would need to be compared to other commoditized industries, average valuation multiples should be in the range of one times to two times EV to sales, with no multiple expansion. With that as a base, note that such solar companies as First Solar (ticker: FSLR) that have the best return on net assets do warrant a premium, though the debate on this particular topic has more to do with the question, “What is the most appropriate premium paid?”

How should investors think about return on equity (ROE)? We break up ROE into three components: (1) the net income margin, (2) asset turnover and (3) balance sheet leverage. Given the fact that solar companies have highly leveraged balanced sheets and that operating margins are permanently under pressure, it is the asset turnover that should be used to differentiate companies and determine which ones can yield higher ROEs.

What are the most appropriate valuation multiples for the solar companies? With the above as the necessary background:

– Solar stocks should be compared to industrial, infrastructure (especially the ones selling products/services to utilities), utilities and other forms of alternative-energy-related sectors (like wind and smart grid/metering).

– Solar stocks should be trading in a range of one to two times EV to sales.

– Solar companies, on average, are expected to have relatively higher return on net assets when compared to comparable industries, thus warranting higher EV multiples, but this has already been reflected in the one to two times EV/sales multiple range suggested above.

– Yes, First Solar has exhibited the best return on net assets, but we also argue that a premium that is more than four times the average solar stock EV multiple is too high.

– The above analysis becomes even more applicable to the solar industry as such companies move downstream (where there is little fixed cost).

This analysis could be applied to other solar companies like:

• Evergreen Solar (ESLR)

• Suntech Power Holdings (STP)

• LDK Solar (LDK)

• Solarfun Power Holdings (SOLF)

• Trina Solar (TSL)

Earnings season is upon us and I think it bears remembering that earnings season has generally been associated with very bad news for banks over the past two years. Every earnings season is filled with surprise writedown announcements and capital shortfalls in the banking sector. We should expect this earnings season to be no different.

In the coming week, investors will focus on earnings from top firms like Apple (AAPL), Microsoft (MSFT) and Yahoo (YHOO) in the tech sector, Wells Fargo (WFC) in banking and Boeing in the industrial sector.

Unemployment, which sits at 9.8 percent and is believed to be heading to 10 percent, is considered one of the economy’s biggest obstacles.

JPMorgan Chase & Co. (JPM) issues its results Wednesday, followed by Goldman Sachs Group Inc. (GS), Citigroup Inc. (C) and Bank of America Corp. (BAC)

This week’s economic data should also provide more insight. Chief among the reports is the Federal Reserve’s minutes from its meeting in late September. The minutes being released Wednesday may give more clues about the Fed’s plans for pulling back on its stimulus measures, including near-zero interest rates.

I was certain that the Dow would hit 10,000 sometime last week, but prices were likely to be more responsive to major US earnings announcements than technical factors. I reckoned first stab at the big number could follow Intel’s earnings release due just after the closing bell.

A major issue to consider when it comes to fourth-quarter guidance is that it would have to absolutely blow expectations out of the water to bring market valuations down to truly appetizing levels. If fourth-quarter earnings for the S&P 500 companies are in line with Standard & Poor’s current estimates, the index’s trailing price-to-earnings ratio would still be at nearly 27 at the end of the year.