Stock Trading Strategy: Appropriation of Retained Earnings

After a successful performance of a corporation, the shareholders are expecting to receive something in return from their capital contribution. However, the board of directors will still discuss if it is the right time to distribute the retained earnings through dividends. Some corporations are still facing problems that hinder them to repay their shareholders. But some are just establishing their priorities in order to fuel their expansion. If the board decided not to pay out dividends or will distribute only a part of the profits, a portion of the retained earnings will be appropriated for a specific purpose. These are the commonly created appropriations:

Appropriation for Contingencies

Corporations allocate their retained earnings to reserve their resources if in case they fail on a pending lawsuit which will result in charges to be incurred. The amount of the liability to be charged on a company regarding a lawsuit is uncertain. A corporation that is unprepared for future losses might end up struggling with bigger problems. Therefore, it is a sensible decision for the board of directors to designate a portion of its retained earnings for emergency purposes.

Appropriation for Plant Expansion

If a corporation has decided to acquire land and build plant facilities, it will surely allocate its retained earnings for such a project. As a project concerning plant expansion continues, a substantial amount of expenses will persist to be incurred to the company as time goes by. Thus, the designation of the retained earnings is reasonable since this is for the benefit of all the shareholders in the future.

The appropriation for contingencies and plant expansion is called voluntary appropriations because these are established by the board of directors at the same time permitted by the shareholders.

Appropriation for Bonds and Stock Redemption

Retained earnings are often reserved with the intention of guaranteeing the disbursement for the bonds or redemption of the stocks. This retained earnings allocation is also known as contractual appropriation.

Appropriation Reserve for Treasury Shares

If a corporation is planning to reacquire outstanding shares from its shareholders, it will retain its profits instead of giving it out through dividends. Since it is covered by the law, the appropriation is also called as legal appropriations.

For readers to get the point of view of the corporation, an example is cited below:

Company XYZ has obtained retained earnings of $4 million. The board has appropriated an amount of $1.5 million from the retained earnings with the purpose of building plant facilities which the shareholders approved. The journal entry for the appropriation is recorded as follows:

Retained Earnings 1,500,000

Appropriation for Plant Expansion 1,500,000

The appropriation for plant expansion is still a retained earnings account but it will not be taken for the payment of dividends. As a result, the unappropriated retained earnings worth $2.5 million is the maximum amount available for paying out dividends.

Once the goal in appropriating the retained earnings has already been achieved, the appropriation can now return as unappropriated retained earnings. As a result, it can be used to distribute dividends or appropriate it again for some other purpose. A journal entry using the foregoing example will be prepared as:

Appropriation for Plant Expansion 1,500,000

Retained Earnings 1,500,000

Aside from distributing dividends, corporations will not restrict a portion of their retained earnings for the intention of supporting their regular operations. The appropriations will be reflected in the statement of retained earnings in order to maintain the trust of the shareholders since some are skeptical that the appropriated amount might go to the pockets of the board of directors.

Dividend Stocks, Investing, Retirement

Income Investing: The Dividend Distribution Process

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Income Investing: The Dividend Distribution Process

A thriving corporation never forgets to keep on looking back on its stakeholders who contributed to their successful performance. Once they secured their financial position and came upon a decision with respect to the dividend policy, corporations usually pay out dividends to their investors as their way of giving back. This process progresses gradually in order to give time for the deliberation of the Board of Directors and for the shareholders’ documentation.

We are going to tackle the dividend payment procedures, the essential dividend dates that must be considered, and who is entitled to claim the dividend payments. To be included here are the accounting journal entries in order to present the corporate perspective to every dividend payment stage. This article will be beneficial especially for the investors that are just starting out.

Date of Declaration

This is the date on which the dividend payment is formally confirmed and announced by the Board of Directors. The board has finally decided what type of dividend will be distributed, the dividend size, and the date of payment. This date is also known as the “announcement date”. This is a date of which option holders must let the corporation know if they want to use their right to the option. During this date, the liability to pay out dividends to the shareholders is acknowledged on the books using this journal entry:

Retained Earnings xxx

Dividend Payable xxx

In this journal entry, we debited retained earnings since the dividend to be paid out will be taken from the profit appropriated by the corporation. Dividend payable has been credited because of the corporation’s liability from its shareholders.

Date of Record

During the date of record, the corporation indicates the shareholders who will be eligible for the dividend payment. The stock and transfer books are to be closed on this date only to complete the shareholder list for the entitlement of the subsequent dividend payment. Therefore, a journal entry for this date is not necessary. In order to use as a source in indicating the eligibility of the shareholders for the dividend payment, a fixed date must be set since stocks are effortlessly transferable.

Ex-Dividend Date

This is a time on which the right of ownership to the dividends is homogeneously dismissed by the stock brokerage four days before the date of record. It is done in order to prevent the recording of the eligible shareholders last-minute prior to the date of record. Thus, stocks transferred subsequent to the ex-dividend date will be automatically listed out from the list of shareholders entitled to the dividend payment. There is also no required journal entry for this date.

Date of Distribution

This is a date of which shareholders will receive the dividend payment. If a cash dividend is distributed, the corporation will mail the dividend check to every eligible shareholder. This date is also called as “Payment Date”. The journal entry to be recorded for the dividend payment will be:

Dividend Payable xxx

Cash, Property, or Share Capital xxx

Since the liability has been satisfied, the dividend payable is debited. While cash, property, or share capital is credited due to the distribution of the dividends.

In order to further elaborate the dividend payment process, an example is provided below:

The board of Bank of America Corp. has formally declared dividends worth $0.18 on a quarterly basis last October 22, 2019. It has been announced that the corporation has completed the list of shareholders eligible for dividends last December 6, 2019. To finalize the qualified shareholder list on the date of record, the ex-dividend is set on December 5, 2019. At last, Bank of America Corp. will issue dividends to the qualified shareholders on December 27, 2019. The dates are illustrated below:

Date of Declaration: October 22, 2019

Date of Record: December 6, 2019

Ex-dividend Date: December 5, 2019

Date of Distribution: December 27, 2019

Dividend Stocks, Investing, Options

What’s The Difference Between Cash Dividends And Stock Dividends?

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What Are The Differences Between Cash Dividends And Stock Dividends?

A dividend is the distributed profit by a corporation to its shareholders. This is how corporations give back to their investors as they contributed capital to its successful performance, and maintain a good rapport between them. Periodically, a corporation pays dividends with an amount that depends on each shareholder’s investment to the company. The decision in allocating a portion of retained earnings is developed by the Board of Trustees. The management shall agree to a decision if there must be an appropriated budget for the dividend payment or what kind of dividends shall be distributed.

Most corporations usually issue two types of dividends: cash dividends and stock dividends. Therefore, investors must familiarize themselves with these types of dividends because they will surely encounter both in the future. In this article, we are going to specify the distinctions on every aspect of these dividends in order to bring awareness of why corporations pay a particular dividend. Consequently, this will eventually help you utilize the knowledge to your advantage towards a successful investment experience.

What are Cash Dividends and Stock Dividends?

A cash dividend is a regular payment in the form of money taken from the retained earnings of the company. Normally, cash dividends are distributed quarterly after prioritizing the payment for the company’s outstanding debts.

A stock dividend, which is also called as scrip dividend, is an allocation of a company’s additional shares originating from unissued shares. This type of dividend is being distributed instead of paying cash dividends to the shareholders if the company’s liquidity is low. Companies distribute stock dividends in order to repay their shareholders without spending cash. Therefore, companies are able to retain their assets and appropriate them for expansion purposes.

Stock Market Calculations

The amount of cash dividend to be given on a shareholder is different from another shareholder depending on their number of shares since it is issued on a per-share basis. For example, if the Board of Directors declared $20 per share, an investor that owns 10,000 shares will receive $200,000 worth of cash dividend. Even if the cash dividend is stated at a specific percentage, the result will always be the same. Let’s say 10% is issued as a dividend on a $200 par value per share. The investor on the preceding example will still get the same amount of $200,000.

The amount of cash dividend that investors will periodically acquire depends on how many times the company will issue annually. Using the previous example, the company pays cash dividends quarterly. Therefore, shareholders will receive $5 per share every 3 months.

With the allocation of stock dividends, the retained earnings are being capitalized while shareholder’s equity stays unchanged before and after its declaration and distribution. The allotment of the stock dividend only expands the number of shares but does not affect the benefits nor the ownership of its shareholders. For instance, a corporation that has 300,000 shares declares a 20% stock dividend. As a result, a shareholder that possesses 3,000 shares from that corporation will gain 600 more shares. The shareholder that owns 10% from the shareholder’s equity will maintain its portion from it after earning a 20% stock dividend and the market price of the stock remains the same.

A small stock dividend considers the distribution of additional shares of less than 25% chargeable to retained earnings at the market value. While the additional share of 25% is considered as a large stock dividend that must be charged at the par value.

Advantages of Cash and Stock Dividend Acquisitions

Obtaining cash dividends will benefit investors whose goal is to earn cash regularly. Cash dividend-paying companies are obliged to pay cash to their shareholders regardless of the companies’ financial status. Therefore, investors must carefully pick the cash-dividend paying companies to invest in for them to ensure a permanent source of passive income.

Through cash dividend, investors are also given the freedom not only to spend it for personal use, but they can also buy more shares from the same company and buy shares to another company concurrently. Shareholders who are willing to reinvest their cash dividend must undergo on a dividend reinvestment plan. Buying more shares is a wise way to earn more money in the future if you believe that the company and economy have the potential to grow.

The advantage of gaining stock dividends instead of the cash dividend is that investors will not incur tax from its acquisition. However, receiving a stock dividend with a cash dividend option included is subject to tax. Investors can sell their stock dividends in exchange for cash. Due to the sale of the stock dividend, it will not be exempted from tax anymore.

Disadvantages of Cash and Stock Dividend Acquisitions

The liabilities of a company increase because it is paying out cash dividends to its shareholders. The companies that distribute cash dividends may either have enough cash flow to support its growth or just feel obliged to give back to its shareholders in order to gain their trust. If a company still pays out cash dividends while still having losses and outstanding debt, that’s already a sign of its financial instability. Instead of distributing cash dividends, companies could have allocated their cash for expansion purposes which may result in market price appreciation. Aside from that, the cash dividends earned by shareholders are subject to tax based on the amount received.

Stock dividends don’t have any value for investors who are expecting cash from the company they capitalized on. For that reason, they are pressured to sell it even for an amount lower than the dividend’s market price. In addition to that, shareholders will incur costs and taxes from selling their stock dividends.

Reasons Companies Issue Dividends

Cash dividends are issued by companies because they already obtained ample earnings. It is predicted that giving back to their shareholders will not affect long-term financial strength. These cash-dividend paying companies pay out cash because they might have a good financial position but has a limited capability to venture on expansion to spend their cash up. Companies tend to issue stock dividends to their shareholders when it is not yet the right time to exhaust assets just to repay shareholders. These stock-dividend paying companies are just taking safety measures because they don’t want to inflict any harm to their liquidity.

Dividend Stocks, Investing

How to Apply Financial Ratios When Buying or Selling Stock

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How to Apply Financial Ratios When Buying or Selling Stock

Buying shares of stocks for your financial security is a good start to suffice your future needs. However, doing so without ensuring the reliability of a particular corporation you want to capitalize on will only jeopardize your investment. It is true that there will be numerous risks to be encountered in investing in stocks. Though, we can still manage to minimize these risks to occur.

Before venturing your money on stocks, it is absolutely necessary for investors to evaluate the financial performance of every possible corporation they have on their list. To aid you with that, there are significant and beneficial details that must be considered for you to determine if a corporation is worth investing in. Here are the most helpful financial ratios in evaluating stocks:

Return on Equity

ROE determines the profitability of exploiting the invested capital. It also verifies the efficiency of the company using the owner’s equity. The return on equity is computed as:

ROE= Net Income less Preferred Stock Dividend Requirement / Issued and Subscribed Ordinary Shares plus Retained Earnings

This formula indicates how much of the net income will each dollar of shareholder’s equity can gain. To explain it further, let’s assume the following:

Ordinary shares, $20 par, 10,000 issued $ 200,000

6% Preference Shares, $10 par, 5,000 issued 50,000

Subscribed Ordinary Shares, 3,275 131,000

Net Income – yearend 72,000

Retained Earnings, Unrestricted 30,000

Preferred Stock Dividend Requirement 3,000

In order to indicate the profitability using these data, return on equity has to be calculated this way:

ROE= $72,000-$3,000 / $200,000+$131,000+$30,000+ $72,000-$3,000

=16%

Take note that retained earnings include net income less preferred stock dividend requirement. From the example, we can say that the company is spending the invested capital successfully as 15-20% ROE is deemed excellent. Longstanding low ROE denotes the failure of an enterprise to maximize profit. Exceedingly high ROE can be good sometimes since it reflects a successful performance. On the other hand, a high ROE may imply a large amount of debts. Additionally, comparing the ROE of a company to the average ROE of the industry is also a helpful way of evaluating its profitability.

Earnings Per Share (EPS)

Out of all the information concerned with stocks assessment, this is the most vital profitability ratio that all investors should be focusing on as EPS determines the amount of profit which every single ordinary share can obtain. It is computed as:

EPS= Net Income less Preferred Stock Dividend Requirement / Number of Common Shares Outstanding

Using the foregoing example, here is an illustration on how to apply this formula:

EPS= $72,000-$3,000 / 10,000 shares

=$6.9 per share

Some companies don’t have preferred shares. If a company has only one class of share capital, a different formula has to be used in order to get its EPS:

EPS= Net Income / Number of Shares Outstanding

A high EPS implies that a company is able to return more than the previous investment of its shareholders. Especially if it’s on a steady upward inclination, potential investors will surely be attracted to availing its shares. Usually, the EPS of a company is weighed against the other companies within the same industry. This would indicate if the company is performing well in comparison to its peers. However, some corporations have a low EPS not because its financial performance is terrible. Its profit might be allocated for reinvestments in order to keep the company progress. Therefore, EPS must not be the only basis in measuring profitability since there are a lot of related factors to be considered.

Dividend Payout Ratio

Aside from determining the profitability of a company, shareholders are interested in knowing how much dividend they obtained from the earnings. Using this ratio, the percentage of earnings that have been distributed as dividend and the percentage of reinvestment will be revealed. If you are going to rely on the amount per share, it will be calculated as:

Dividend Payout Ratio= Dividend per Share / Earnings per Share

On the other hand, apply this formula if the only given data is the retention ratio which indicates the portion of the earnings to be plowed back to the company:

Dividend Payout Ratio=1-Retention Ratio

The average S&P 500 dividend payout ratio is approximately 35%. An extremely high dividend payout ratio is considered good as the company is willing to pay out high-priced dividends. But some risks are linked with a high percentage because the company might not be thinking about expanding its operations or not even allocating its profit for future needs. A dividend payout ratio with more than 100% means that the company is distributing more dividends than it is earning. This will possibly result in the postponement of paying out dividends in the upcoming years. These factors have to be considered if investors are planning to acquire a long-term investment.

Small-scale companies that are still starting out normally have a low or 0% dividend payout ratio since their earnings are directly appropriated to a specific purpose such as strengthening financial growth and supporting expansion.

Price-Earnings Ratio (PE Ratio)

Potential investors must not only be interested in how much the company earns. They must also be aware of how willing investors are in obtaining shares. P/E ratio measures the association between the market price and the earnings per share. At times, the P/E ratio is called price multiple because it reveals the extent of how much investors are expected to pay for every dollar of earnings. It must be computed as:

Price-Earnings Ratio= Market Price per Share / Earnings per Share

Even though a high P/E ratio shows how attracted investors are in acquiring shares just because price escalation is anticipated to occur in the future, it could also mean that the market price is overvalued. Companies that acquired losses will result in having a negative P/E ratio and will be expressed as N/A.

Financial ratios are calculations using numerical figures that originated from financial statements. Being equipped with these fundamental tools is an advantage in indicating if a company performs well. If these are interpreted and utilized correctly, you will be able to derive decisions in avoiding investment risks.

Commodities

Commodities Markets: What Causes Changes in Gold Prices?

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Commodities Markets: What Causes Changes in Gold Prices?

Why do investors want to know about the history of gold prices? When buying and selling precious metals, investors always need to know about the dominant market trend. Knowing about the history of gold prices will help you make good decisions. Not only in minerals but other markets, as well. It is important to know more about the history of your business. It sheds light on what you should do and when. In gold, you will know why the prices change the way they changed. You also know about the high and the low season. Gold is seen as the most precious metal among the others. Its value is mostly higher than the others. Gold, until today, is used as a store for wealth. This will continue to be the case because of the changing values of fiat and paper currencies.

Gold prices change but they still remain at a reasonable point. Therefore, gold is the best measure of wealth. This is a continuation of the traditional norms. Kings and queens stored their wealth in the form of gold. Many decades ago, gold was used as money. Our forefathers traded products for gold. Today, all that has not been eliminated. In some nations, gold is used in making coins. Though, in a small amount, gold is of great value. In some museums, you will find a collection of these coins that were fully or partially made of gold. The prices of gold have however faced changes in recent years. Today, gold is traded in electronic trading platforms. In 2011, it managed to rise up to over $1,900 before it started going down. This is to show you how much gold is valued. It is making headlines not only in physical form but also virtually.

History of Gold Prices in the U.S

Starting from the year 1791, the prices of gold in the U.S experienced changes. In 1791, the price of gold was $19.49 per ounce. 43 years down the line, the price went up to $20.69 per ounce. Increasing with $1.2 only after 43 years doesn’t seem right. In 1928, the Federal Reserve increased interest rates. This led to a recession in 1929. This made people redeem the normal currency into gold. Gold had more value compared to the dollar at this time. Due to the high demand for gold, the Federal Reserve was asked to raise the interest rates.

In 1931, the value of the dollar increased and there was a decrease in demand for gold. In 1933, a law was stated that did not allow anyone to own bullion and gold coins. The gold was sold to Federal Reserve since private ownership was now illegal. Ever since the history of gold prices in the U.S became more interesting. The strength and weakness of the dollar have contributed to the price changes for gold. In 2011, the price of gold was at $1,895 per ounce. This was a result of the debt crisis.

Before investing in gold, you should be aware of factors that contribute to the change in price in gold. They will enable you to know the best time to invest and when not to. There are many factors that have contributed to these changes and some of them are;

Demand and Supply of Physical Gold

Gold has many uses from making jewelry to being used as a store for wealth. When gold is in high demand and the supply is low, the prices tend to go up. This is one cause of changes in gold prices. It is not different from other markets. Any product that has a low supply compared to demand increases in price. When gold is in high supply and the demand is low, prices go down. This is because sellers have more than what the market needs.

Inflation and Deflation

This is a sign that the economy is growing. A higher rate of inflation leads to higher prices of gold. Inflation is a result of stable political factors and motivation in economic growth. For instance, gold did not perform well during the world war. Before the beginning of World War 1, some nations adopted the gold standard. The gold standard was used to compare domestic currencies before setting the prices, to the value of a certain amount of gold. However, this came to an end when the war began. During this period, economic growth was not experienced either. Deflation happens when there is no upward growth in the economy. It is a time when there are fewer employment opportunities and investments. This leads to a decrease in gold prices.

Central Banks

Central banks are in charge of the amount of money circulating in a country. It also has a mandate to limit the amount of gold in supply. This can lead to a change in prices. Another thing is, when the central bank increases interest rates, the price of gold rises. Central banks, therefore, play a vital role in changes in gold prices.

Strength and Weakness in the U.S. Dollar

Gold is dollar-denominated. When the value of the dollar goes high, the price of gold decreases. It is also true that gold price increases with a weakening dollar value. This is because, when the dollar becomes weak, the currency in other nations become stronger. When this happens, the demand for products go up, gold is one of them. Its demand goes high leading to a rise in its price.

Conclusion

The story of gold prices starts way back in history. However, today it remains highly valued. As time went by, gold coins were used instead of gold bars. Today, gold remains to be a treasure. If you have gold, you feel that you are rich. This is because of the value it has and how much it is worth. A small piece of gold will go for dollars. Most importantly, people in the buying and selling of gold should not overlook its journey.

Bitcoin, Crypto, Cryptocurrency

Crypto Markets: Bitcoin ETFs See Continued Approval Efforts

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Exchange-Traded Funds (ETFs) are investment securities that allow potential investors to trade a market without the risk of owning any stock. ETFs resemble index funds. They enable an investor to buy a collection of securities with a single transaction. ETFs trade any time of the day as their prices keep on fluctuating. Usually, ETFs track particular securities, just like an index.

What Are Bitcoin ETFs?

Every ETF is tied to an underlying index. In the case of Bitcoin ETF, the index would be the Bitcoin or a portfolio of Bitcoin and other cryptos. A Bitcoin ETF will follow the price movement of Bitcoin crypto.

SEC, the US Securities and Exchange Commission classifies ETFs as securities. An investor does not need to own the underlying asset. ETFs are good options in volatile trading markets because they are appropriate in mitigating risks. Trading Bitcoin and other cryptocurrencies have had challenges, especially high volatility and regulation.

Since its introduction about a decade ago, Bitcoin has grown in popularity, attracting interests from investors and governments. As an investment option, Bitcoin experiences significant and sudden price movements, which has caused skepticism in some sections. The crypto market is still unregulated, which exposes it to manipulation and fraud. Investing in the crypto is not easy for new entrants; at the minimum, one has to set up as an account with an exchange firm.

A Bitcoin ETF will possibility address all these challenges. It will offer investors an opportunity to profit from a secure, familiar, and regulated environment. An ETF will add some element of security as investors’ money will be tied to the price and not the digital coin.

Bitcoin ETF Approval Attempts

ETFs are in the securities class; as such, SEC has regulatory authority over them. Before 2019, SEC had rejected several applications for Bitcoin ETFs to operate at the New York Stock Exchange.

In October 2019, SEC rejected an application for a Bitcoin ETF from Bitwise Asset Management. In its rejection notes, the regulator cited a high probability of manipulation and fraud as the main reasons for the denial. SEC seems not to have a problem with the Bitcoin ETFs as a product; the concern is with the underlying asset.

In mid-November 2019, SEC announced it would be reviewing its October decision to reject Bitwise Asset Management’s ETF application. In its advertisement for review, the regulatory body stated that it would be opening the request for comments. It has given a one month period for evaluation. However, the rejection order it issued in October is still in force.

Bitwise Asset Management made its application at the beginning of this year. The request relied on extensive data research. Bitwise remains hopeful and is considering adopting the research route again in its re-submission.

This November, Kryptoin Investment Advisors, a firm based in Delaware, has filed an initial registration statement with SEC. The ETF has been in development for two years and will track the Bitcoin reference rate. T A former executive director of the World Gold Council spearheads the Kryptoin’s EFT application. The former director believes that the challenges that Bitcoin is facing as a class asset as similar to what the world gold council experienced when it introduced SPDR Gold Shares to the market.

The market is waiting for the first approved Bitcoin EFT. There is optimism that EFTs will eliminate the issues with Bitcoin and the altcoins. SEC is not convinced that Bitcoin is free from manipulation, but with all the interest from different experts, it’s only a matter of time.

Gold, Precious Metals

Precious Metals: Gold Is Basing For Next Bullish Wave

November 20, 2019 prostockmarkets Leave a comment

Precious Metals: Gold Is Basing For Next Bullish Wave

In 2019, one of the market’s most surprising stories has been the massive bull trend movement that has been established in gold. Additionally, a series of unpredictable changes occurred in the realm of monetary policy, as the Federal Reserve has already broken with its long-standing position to raise interest rates as a way of preempting continued expectations for growth. In the U.S., the latest evidence in the national GDP readings implies growth rates that are close to zero for the fourth quarter. Overall, this is not a bullish scenario for stocks —even with the S&P 500 trading near its record highs.

My regular readers know that I often tend to look at market inflow activity in some of the precious metals industry’s most popular exchange-traded funds (ETFs). This would also include instruments like the VanEck Gold Miner’s ETF, which is a topic I have discussed in a prior article. Ultimately, this type of approach to baseline fundamental analysis can provide important clues that help identify price trends that are likely to begin reversing relatively soon.

Most directly, we can see that recent activity in the SPDR Gold Trust ETF (NYSE: GLD) has shown outflows worth $1,308.7 million over the last four weeks. However, this figure might paint a very different picture when compared to various time horizons. In the last 13 weeks, GLD has seen inflows of $2,330.9 million but this figure actually grows to $7,191.3 million over the past 26 weeks. Overall, these are significant differences that give us a fundamental reason to believe that there will be underlying strength in any technical trading events that are generated as a result of 2019’s bullish trend moves.

Traders should define the major rallies in precious metals as a development the occurred after the beginning of summer. However, the true origins of that really actually began much earlier (as commodities markets were confirming their lows near the end of 2017). In this chart, I have outlined a series of levels that could prove to be pivotal in the event we see a true bearish reversal in the price of precious metals.

Using the price valuations in GLD, we can isolate these important price levels as falling near $106.80, $112.05, and $126.50. This first level marks the lows from December 2016 while the second level marks the lows from August and September 2018. The third level on the GLD price chart shown above is meant to mark the highs from February 2019. This final price zone will now be expected to act as support once the GLD valuation overcame resistance at these levels.

Shorter-term, the confluence of these technical factors suggest we are likely to begin basing above the $126.50 region. Evidence supporting the bearish outlook would include the slowing momentum levels that are present on the daily charts. In my own trading, I will be paying special attention to the technical indicator readings in the Commodity Channel Index (or CCI). I expect to see the first clues of short-term reversal in the CCI reading. Longer-term charts (weeklies) are clearly positive and it seems to be just a matter of time before that prior uptrend resumes.

Initial resistance levels suggest traders will likely target $147.10, which was the price high from September. However, the price targets that could be reached if these levels are broken could be outrageous. Long-term readings in market momentum remain favorable and the short-term retracements we have seen to the downside could create some new buying opportunities in the weeks ahead. For additional information on how I use the Commodity Channel Index to gauge price momentum, readers might be interested to see my Momentum Trading Tutorial which explains in greater depth some of the ways these technical charting tools should be interpreted.

Dividend Stocks

5 Reasons Some Companies Don’t Pay Cash Dividends To Their Shareholders

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5 Reasons Some Companies Don’t Pay Cash Dividends To Their Shareholders

As an investor, your goal in capitalizing on a trusted corporation is either to earn income from your dividends or to receive an amount of capital gains that exceed your investment. The corporation that you may have chosen has previously presented impressive performance and has been regularly paying dividends to its shareholders.

Despite the positive operation of the corporation, a time will come that it will suddenly take a break in distributing dividends. But there is nothing to worry about because it does not automatically indicate bankruptcy as there are explanations behind this occurrence. Dividend policies have a great impact on the management’s decision regarding the payment of dividends. Investors should remember these general considerations influencing dividend market strategies:

1. Legal Limitations

Although there is no specific law that obligates firms to disseminate dividends to its shareholders, circumstances must be met concerning the dividends allocation system as imposed by law. Firms’ decisions regarding dividends are affected by these statutory restrictions:

Insolvency rule

If the company’s total liability has surpassed its total assets, then it signifies incapacity to pay dividends from the fact that it reflects financial insolvency.

Net Profit rule

Companies are allowed to distribute dividends if it earns a net profit. On the other hand, if companies incurred losses, shareholders have to wait for the companies to recover from their losses in order to receive their dividends.

Dividend surpasses profit

Companies may not distribute payments if their dividend is greater than retained earnings. If the amount of dividend exceeds its profit, it only indicates that the company is paying out too much of its dividends but does not earn or retain profit to power its growth.

Capital Impairment rule

The creditors’ rights must also be protected. Therefore, companies are forbidden to pay out dividends if it is taken from its capital invested in the firm. Aside from the limitations provided by law, certain restrictions are urged by investors to the companies in order to take precautions such as requiring them to preserve a certain amount of working capital and to declare dividends subsequent in repaying debts.

2. Firm’s liquidity position

There is a misconception that a firm’s outstanding amount of profits implies its sufficiency in disbursing cash dividends to shareholders. We have to take note that cash adequacy is unconnected to retained earnings. Firms can earn profits well but can also be lacking with cash from the fact that it might be prioritizing the settlement of its debts or recapitalized its cash in the company. Dividends may not be paid if not held in cash that is why dividend payout is influenced by the company’s liquidity position.

3. Certainty of earnings

If companies have volatile earnings, they cannot depend on internally generated funds in order to support their financial stability. This occurrence will definitely affect the administration’s decision on whether to focus on satisfying the necessities of the company or paying dividends.

4. Deficiency in alternative financial sources

Small-scale companies tend to have a lower dividend payout ratio due to their inability to get access to capital markets. These companies that are still starting out prefer saving their generated profit as an investment rather than paying dividends.

5. Tax in dividend income

Shareholders have a personal preference when it comes to receiving cash dividends due to the tax bracket. The tax to be incurred in receiving capital gains is much more inexpensive than in dividend income. Therefore, shareholders who have a high personal tax bracket would rather have capital gains. In addition to that, the higher cash dividend is subject to a higher tax to be paid which also affects shareholders’ decisions.

These are just the common factors that greatly affect the management in settling decisions concerning the distribution of dividends. As you devote yourself further to exploring your chosen corporation, you can also uncover the other details about its dividend policy.

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Dividend Stocks, Energy Stocks, Stock Markets

What’s Behind Recent General Electric Stock Price Action?

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What’s Behind Recent General Electric Stock Price Action?

General Electric GE stock represents the shares of the General Electric Company. The General Electric Company is an American multinational with diversified interests in technology and financial services. As of 2018, the company operations spread across the aviation, renewable energy, finance, and lighting industries. General Electric products range from aircraft engines, domestic appliances, and medical imagining equipment.

GE Stock Price History

On November 12, 2019, the General Electric stock’s closing price is $ 11.42. Notable price levels of the GE stock are as indicated.

The record high price was 60.00, the Stock closing price on August 28, 2000.
GE’s last 12 months’ high price is 11.75, which is 2.9% above the current share price.
GE’s last 12 months low price is 6.60, which is 41.7% below the current share price.
The average gas price for the last 52 weeks is 9.36.

Rise and Fall of General Electric Company

General Electric is one of the 12 companies that composed the Dow Jones Industrial Average. It joined in 1986, and its membership lasted for 122 years. After world war 11, GE became a giant manufacturing company in the US. Its product range was everything from household appliances to military equipment. GE diversified into other industries, including plastics and computing. After Acquiring NBC television network in 1986, GE became a major player in the entertainment industry. The company reached its peak in August 2000, with a market capitalization of $594.

The years between 2001 and 2017, were harsh to General Electric. The company navigated September 11, 2001, terrorists attracts that threatened its airline business. In the same period, the company acquired several enterprises that did not perform as expected. The 2008 financial crises hit the company hard. It’s stock prices depreciated by 42 percent, forcing the company to rethink its operating strategy. GE had to sell some of its money-making ventures such as NBC Universal and GE Plastics to focus on its core functions of manufacturing.

The company slashed its dividend for the first time in 2009 and further in 2010. In June 2018, the GE stock got removed from Dow Jones Industrial Average. In November of the same year, GE share price fell to below $9, the lowest since the 2008 financial crisis.

General Electric Resurgence Attempts

In a bid to prevent total collapse, GE named its first outsider CEO in 127 years on October 1, 2018. The stock spiked to a high of $ 13.08 within days. The new CEO has moved fast to slash the company’s rising debts. He has sped up GE’s separation from oil and gas giant Baker Hughes. The CEO has reviewed dividends downwards as well as offloading the BioPharma business.

The new CEO holds high regard in Wall Street. Despite this, the GE stock has lost 24 percent in value since he took over. Analyst predicts the share would be trading at $4 if GE had a CEO with inferior ratings. The China-US trade wars are making the company situation more challenging. The aviation sector has been the best performing division of the company. With the grounding of the Max 737 due to safety concerns, GE cash flows will be lower by around $300 per quarter.

GE Future Price Outlook

The stock has lost 69 percent of value in the last three years. Few investors are buying the GE stock. The CEO expects the company’s industrial businesses to have cash outflows in 2019. Forecast for 2020 is positive cash flows and acceleration in 2021. Should the cash flow growth proceed beyond, 2021, then GE is a good value currently.

Conclusion

General Electric has had its glorious days. Analysts still believe that the company has better days ahead. The market has high confidence in the current CEO. Time will tell whether General Electric can turn its fortunes around. However, the majority of the analyst community still seems to be neutral on the stock.

Bitcoin, Crypto, Cryptocurrency

Crypto Markets: SEC Denies Bitwise Bitcoin ETF

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Crypto Markets: SEC Denies Bitwise Bitcoin ETF

With the rising popularity of bitcoin as a global cryptocurrency widely accepted, many companies and services have emerged. They emerged with the aim of taking bitcoin to the next level as the currency of the future. One of such services is the bitcoin ETF. We shall discuss it in its entirety below.

What Are Exchange-Traded Funds (ETFs)?

Exchange-traded Funds (ETF) are investment funds trades very much like a stock. Essentially, they are investment vehicles that allow investors to purchase assets without actually owning them. Portions of ETFs are owned by shareholders but they do not own the underlying assets.

ETFs trade on exchanges like stocks, bonds, and commodities. Most of them work by tracking the performance of their assets and selling shares to investors in funds. An ETF is an attractive investment because it is cheap (requires low cost), tax-efficient and stock like in nature. It is simplified and has a wide range of assets. The prices of ETFs can be tracked through unique ticker symbols.

It is important to know that ETF is different from stock exchange and mutual funds. The main difference between ETF and stock exchange is; stock exchange is a representative of one company while ETF represents a basket of assets. Although it is similar to mutual funds, ETF has lower fees and trades on common stocks and stock exchange.

What is a Bitcoin ETF?

Bitcoin ETFs are simply an ETF whose underlying asset s bitcoins. It mirrors the price of bitcoins. Bitcoin ETFs give investors the opportunity to purchase bitcoins through the stock market without actually possessing them.

Bitcoin ETFs eliminate the risks of actually owning or investing in bitcoins and its complexities because investors are not directly involved in trading them.it acts as a shield to investors from the unregulated bitcoin cryptocurrency world by exposing them to bitcoin trading in a regulated setting.

Types of Bitcoin ETFs

Actual bitcoins holding ETFs like VanEck and Solid X Bitcoin are derivative ETFs. Essentially, this means they do not physically own bitcoins but trade on its future options. For these types of Bitcoin ETFs, examples would Direxion ETF and Proshares ETF.

How Do Bitcoin ETFs Work?

Bitcoin ETFs, as we have established, provides ways for investors to invest in bitcoins with minimal risks. They work in the following ways funds are collected from investors to purchase shares that are linked to bitcoins (shares are bought by spending investors funds) by the prospective custodians (might be a bank, an assets management company or cryptocurrency exchange).

Assets are then distributed to ETF providers in exchange for fund shares (whose value is equivalent to the assets) by Authorized participants (parties in charge of buying ETF assets for EFT benefits). As a result of the above, without being owners of the underlying assets (bitcoin), investors become shareholders.

Bitcoins vs Bitcoins ETFs: Which Should Investors Choose?

Seeing how bitcoins ETF works you might get confused about which one to invest in. you might ask yourself ‘why not invest in bitcoins directly instead of going through the middleman process of ETFs. Well, there are several reasons to go fat bitcoin ETFs. They include;

Elimination of risks and burden: by investing in bitcoin ETFs, you can eliminate the risk and burden of trading in bitcoin itself. With bitcoin ETFs, you don’t have to manage a bitcoin wallet or lose your bitcoins should someone gets access to your private keys. This is due to the fact that you don’t actually own the bitcoins; you just have shares which you can sell in traditional stock exchange markets.

Ability to short-sell: when there is an anticipation or the possibility that the price of bitcoins will plummet in the future, investors can easily short-sell their shares of the ETFs. In the traditional cryptocurrency market, the possibility of this is nil.

Easy to understand: instead of getting caught up in the complicated process of trying to understand the bitcoin cryptocurrency, you can easily invest in a market you are familiar with.

Points of Advantage

Bitcoin ETF models have been proposed by its opponents to have some indispensable advantages:

Popularization of bitcoin and other cryptocurrencies and validation of bitcoins from global financial markets.
Provides investors with the opportunity of short-term, medium-term and long-term investments.
Its regularization would help in the legalization of bitcoin as an asset.
A means to restore bitcoin prices to what it was before it skyrocketed.
Reduces the risk of investing in bitcoins directly.

Bitcoin Controversies

Although the bitcoin ETFs look promising and future-oriented, it is still controversial and yet to gain approval from the US Securities and Exchange Commission (SEC) because of the controversies and disadvantages they portray.

Third-party players: no matter how trusted a bitcoin ETF custodian is, since bitcoins are controlled by them, investors would have no say in deciding the future governance of bitcoins.

Risks of fraud and manipulations: this is one of the greatest, if not the greatest reasons why the US Securities and Exchange Commission has refused giving its approval to bitcoin ETFs. According to the SEC, they do not stop or circumvent fraudulent practices to which investors are exposed to.

Fear Bitcoins ETFs will make Bitcoin prices more expensive: one of the proposed advantages of bitcoin ETFs is that it would bring bitcoins back to its original price. But, there is a fear that it will do just the opposite because of the withdrawal of large bitcoins from circulation. This would, therefore, increase the scarcity of bitcoin as an asset.

Custodial system of Bitcoin ETFs: the operational system of bitcoin ETFs can deter users who want to have their cryptocurrencies from actually investing in them.

Differences between Bitcoin ETFs and Blockchain ETFs

Bitcoin ETFs should not be confused with blockchain ETFs. Bitcoin ETFs simply focuses on bitcoin as its underlying asset and blockchain as the underlying technology behind bitcoin. Blockchain ETFs, on the other hand, is focused on tracking prices of companies investing in blockchain technology with the view of utilizing it.