Your Financial News Roundup
May 17, 2023
TL;DR
1. Economy: The Senate questioned executives of collapsed banks on their high compensation; while select cities in the U.S. could become future Silicon Valleys.
2. Tech: Disney+ and Hulu will combine content libraries; while Vice News filed for bankruptcy.
3. World: Thais voted overwhelmingly for democratic parties; while China detained U.S. citizen John Leung on espionage charges.
Personal Finance Concept [Part 3/8]: Dividend Investing
Economy
🏛 Explain Yourself!: Yesterday, the Senate Banking Committee held hearings to grill the executives of Silicon Valley Bank (SVB) and Signature Bank. Rob Becker, ex-CEO of SVB, was chided for poor risk management, though he insisted the collapse was due to other causes, including a social media-driven bank run. Senators also questioned whether execs took excessive risks to temporarily boost stock prices in exchange for millions of dollars in stock-based executive pay. A bipartisan bill is in the works that gives the FDIC power to claw back executive pay in the 5 years before a bank failure to enforce accountability and curb the perverse incentives of executive pay. Notably, the bank leaders said they would not forfeit any previous compensation. (APNews)
Our Take: Stock-based executive compensation promoted the irresponsible risk-taking that led to the 2008 crash and seems to be the culprit behind the recent banking crisis. In 2008, the senior leaders of bailed-out banks used taxpayer-funded money to give themselves bonuses, sparking discontent with big banks and the government alike.
🧑🏽‍💻 America’s Future: Last week, the Commerce Department unveiled a program to for cities to apply for $500M in grants to become tech hubs. It’s part of a larger $10B authorization set aside by the CHIPS and Science Act to stimulate the development of new tech like quantum computing. One of the Biden admin’s priorities is to develop America’s industrial, tech, and scientific resources to boost national security and economic competitiveness. 10 cities are expected to get selected for funding. (ABC News)
Our Take: Though CA’s tech companies made the Bay Area a powerhouse, other parts of the country were left behind economically. With many tech firms leaving CA, there’s an opportunity for other regions to become specialized tech hubs, seeding future Silicon Valleys.
Tech
🪢 Cross the Streams!: Streaming giants Disney+ and Hulu will combine their content libraries to shore up profitability after the House of Mouse lost 4M subscribers in Q1. Disney CEO Bob Iger has been in talks with fellow Hulu co-owner Comcast about fully owning Hulu next year. Last quarter, Disney+ lost $659M and had $1.1B the prior quarter, mainly from subscriber burn and losing rights to Indian cricket matches. Amid an industry-wide writer’s strike and layoffs, the pressure is on for Iger to lead Disney to profitability, which he expects will be next year.
Our Take: In prior years, the streaming companies had a growth-at-all-costs mentality as they acquired subscribers and produced content. Now shareholders have forced them to shift their focus to profitability by cutting costs.
🎬 The End of an Era: In 2017, Vice was valued at $5.7B and considered an IPO. Fast forward to today, the edgy media giant has filed for Chapter 11 bankruptcy and will get purchased by its lenders — Fortress Investment Group, Soros Fund Management, and Monroe Capital — for $225M. Vice’s fall from grace stems from poor management decisions, a “boy’s club” work environment, and a culture of sexual harassment. In the wake of Vice’s downfall, other media companies have been facing turbulence as well, including the Pulitzer Prize-winning BuzzFeed News and MTV News, both of which have shut down and laid off staff. (TechCrunch)
Our Take: The digital media industry is facing tough times. Vice is just one of the many media outlets affected by a downturn in digital advertising and shifting news consumption patterns.
World
🇹🇠Freedom: Over the weekend, Thai voters ended 9 years of military rule under the “Prayuth regime.” The current Prime Minister Prayuth Chan-ocha led a military coup in 2014 that displaced the elected government. Now, the opposition parties led by Move Forward’s Pita Limjaroenrat will form a majority coalition in Parliament. But, there are fears that the 250 Senate members appointed by Prayuth will block the coalition’s progressive reform agenda and get the military involved to disqualify them. (BBC)
Our Take: Thailand has a history of coups, making democracy fragile for the rising country. This latest change was spurred by the 2020 youth protests, a higher turnout of young voters, and a general desire for change.
🕵🏻 To Spy or Not to Spy: China sentenced elderly U.S. citizen John Shin-Wan Leung to life in prison for unspecified spying charges on Monday. Chinese and U.S. media indicate that Leung was heavily involved with Chinese ex-pat and cultural organizations in the U.S. and had ties to local officials in China as well as multiple Chinese ambassadors. Though harsh sentences are rare for foreigners, this action could get used to help the country gain leverage in upcoming talks with the U.S. (CNN)
Our Take: China and the U.S. have been gearing up for a tit-for-tat escalation ever since the trade wars began in 2018. Whether Leung is a spy or not, his detainment will likely make him a pawn in the larger international struggle.
Finance Concept of the Week
The Investor’s Playbook [Part 3/8]: Dividend Investing
Investment Strategies for Financial Success
If you want to make passive income, dividend investing is an attractive strategy that allows you to do just that. Many companies and funds, such as Microsoft, American Express, AT&T, Target, and Kimberly-Clark, share profits with shareholders on a quarterly or annual basis via dividend payments. The more shares you hold of these dividend stocks, the more money you will receive.
Pros
- Earn Passive Income: If you want to supplement your income with alternative sources, dividend investing can provide you with a regular stream of money. In particular, they are favored by investors who are retired or looking for passive income.
- Stability: Companies that pay dividends tend to be more stable and have a long history of consistent performance. These companies are generally less volatile than growth stocks, which tend to be riskier and more unpredictable.
- Combat Market Volatility: Dividend stocks tend to outperform the S&P 500 during recessions and are generally low-risk, high-reward investments. Investors are less likely to sell dividend stocks during times of market uncertainty.
- Compound Your Investments: If you reinvest your dividends by purchasing additional shares, you can get larger dividend payments in the future while growing your investments. Additionally, as these companies grow and expand, their share prices may continue to rise.
Cons
- Lower Growth Potential: Companies that pay dividends may not reinvest all of their profits back into their businesses, which can limit their growth potential. For example, while AT&T currently has a 6.55% dividend yield, if you look at the company’s 5-year share price history, it’s hovered around $17-24 per share since 2018. Thus, investing in dividend stocks could lead to lower returns over time.
- Limited Selection: Not all companies pay dividends. In fact, most don’t. If you use dividend investing as a primary strategy, that could limit the selection of stocks available for you to choose from, resulting in a less diversified portfolio.
- Tax implications: While dividends may get taxed at a lower rate in certain countries, they may also be subject to double taxation. In other words, you may need to pay taxes on capital gains when you sell the stocks and also on the dividend income your receive.
- Subject to Dividend Cuts: Companies may cut or suspend their dividends at any time, as seen during the COVID-19 pandemic. If you reply on dividends as an income source, this can result in a temporary loss of income.
Tips and Tricks
- Set Up a Dividend Reinvestment Plan (DRIP): Investors who employ dividend investing tend to set up dividend reinvestment plans to maximize returns. Dividend reinvestment is the process of using dividend income to purchase more shares of the issuing company or fund automatically. You can access DRIPs through your brokerage or from dividend-paying stocks with DRIPs.
- Check Out the Dividend Aristocrats: The Dividend Aristocrats are S&P 500 companies with 25+ years of consecutive dividend increases and have strong competitive advantages in their industry. They are high-quality, shareholder-friendly companies with a strong history of rewarding investors.
- Consider Your Goals and Risk Tolerance: Dividend investing is merely a tool for you to build wealth, so make sure to create a long-term investing plan that factors in your investment goals, risk profile, and time horizon.
Best For
Dividend investing is best for long-term investors who want to take a lower-risk investment approach while earning a steady income stream.
Tip of the Week
đź’¸ Money is the #1 cause for divorce. It’s crucial to communicate honestly and regularly with your partner about your finances and get aligned. Don’t let money ruin a great relationship!
#Oof
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