Dividends and Netflix shares slide

When you are investing there are two aspects – when you buy shares what are you buying – growth or income? If you are buying growth, then you analysis or valuation of the company has to be did it deliver on growth? at what rate do you believe the growth will continue? In how many years will the company be profitable? If you are buying a company for income – did it make a profit and is it sustainable? If you buy an utility company then it should be relatively easy to determine the answer. If you read the report from the President and he or she says there are many headwinds? you have to ask why? the utility goes before a regulatory body to gain an increase and the economy of the region where it operates has to continuing operating, where are the headwinds?

For a company such as Netflix, the company spends a great deal of money on production to ensure there are many subscribers for the company to continue to grow. In mid January, Netflix drew a record 8.8 million paid steaming subscribers to watch the movie Bird Box. For the quarter ending in December, revenue was $4.19 billion slightly less than Wall Street expectations of $4.21 billion. The company reported earnings of 30 cents a share.

The company has 8.8 million subscribers which was higher than the 7.6 million forecasted and the number excludes the free-trial memberships. Wall Street was expecting 9.2 million subscribers.

Linking to dividend paying stocks, Netflix does not pay a dividend and is not expected to, to buy the shares is to continually look at the new movies and TV productions to see if they have the appeal to keep subscribers paying their membership fees. If and only if memberships were decreasing or Netflix shows were not the most popular, then you would have to change your growth projections and pay less for the stock. Unlike a dividend paying company, the growth is over the long term as your dividends every year decreases the cost of owning the shares. Over time with a great franchise with low risk your net worth increases and that is a good thing.

There are more questions than answers, till the next time – to raising questions.

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