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You know that buying a stock makes you part owner of a company, theoretically with millions of other people. But, while ownership has its privileges (at minimum you get a neat stock certificate and an invitation to the annual meeting), being an owner doesn't necessarily pay. Sure, you make money if the stock goes up, but only if you sell, and you can, in theory, lose all the value of your investment if the stock tanks.
Enter the dividend. Here, you get money simply from holding the stock. Companies pay a yield, which is expressed in a percentage based on the stock's price. For example, if a stock trades at $10, and pays a 10% annual yield, your dividend payment would be a $1. (Usually, companies break out the payments quarterly, so, using our example, you¿d get, well, a quarter each quarter.)
Companies that pay dividends fall into a few categories. First, you've got your big, stable companies that generate enough cash that it makes sense to throw some back to shareholders. Next, there are businesses, like real estate investment trusts, that are in the business of sitting back and receiving cash, then distributing it to holders. And, then there are companies that need to dangle a high dividend yield like a carrot to ease investor fears. Cigarette-maker Altria has been doing this for years.
Simply because a company pays a dividend doesn't make it a good investment. After all, you may want to take a chance on a growth stock that can move higher in price than dividend payers are known to do. But, you can¿t beat the safety of knowing that, even if a stock doesn't move in a year, you¿re at least making something off your investment.
Home / Markets / Industries / Finance
Monday, June 16, 2008
Analysis
Lehman CEO Takes Full Responsibility for Near $3B Loss
Ken Sweet
FOXBusiness
There were no surprises on Lehman Brothers’ (LEH) earnings conference call on Monday.
Instead it was a chance for top Lehman executives to publicly address the investment bank’s mounting losses, and to buoy investor confidence in the bank's troubled balance sheet.
Lehman, the fourth-largest U.S. investment bank, reported a $2.8 billion loss, or $5.14 per share, compared to a profit of $489 million, or 81 cents a share, from a year ago--exactly the same as the preliminary figures released last week.
Lehman Chief Executive Officer Dick Fuld spoke directly with investors for the first time since the bank replaced the company’s number two and three officers and raised $10 billion in fresh capital.
“I am very disappointed with these financial results,” Fuld said. “We lost $2.8 billion, and that’s just totally unacceptable. This loss is my responsibility.”
The loss was in large part caused by the bank writing down more than $4.1 billion in mortgage-backed investments this quarter.
Investors seemed to find some solace in comments by Fuld, as well as Lehman’s newly appointed Chief Financial Officer Ian Lowitt and new Chief Operating Officer Bart McDade. The stock was up as much as 8% in mid-day trading.
The biggest issue for investors was Lehman’s ability to deleverage, or sell off, toxic parts of the bank’s balance sheet this quarter.
Fuld said the bank was able to reduce its balance sheet by $147 billion to $639 billion -- more than originally expected -- by selling off commercial and residential-mortgage backed investments, often at a loss.
The CEO said Lehman wants to reduce its exposure to all assets -- from stocks to bonds -- in order to restore the bank's balance sheet and redeploy money elsewhere.
By selling more than $147 billion-worth of assets, Lowitt said Lehman was able to reduce its leverage ratio to less than 25 times – giving the bank one of the lowest leverage ratios in the business.
Fuld also emphasized the $10 billion in new capital the bank raised last week, and said he believed the bank could survive any major market disruption, especially with the Federal Reserve's new system that came into existence after the collapse of Bear Stearns
The bank’s level three assets did not improve much, however. Lehman estimated that its level three assets, which are investments that are hard to sell or price, would decline to $38 billion this quarter, down from $42 billion in the previous quarter.
Lowitt said while the deleveraging did help reduce the bank’s exposure to the toxic level three assets, places like commercial mortgages and the residential mortgage market in Europe and the U.K. are becoming an increasing concern.
Fuld said he was “comfortable” with the bank’s current valuations on its exposure to mortgage-backed investments.
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