Dividend Comeback

Dividends took a major hit during the early part of the COVID lockdown, with numerous companies cutting or eliminating dividends. Now it appears that dividends are making a comeback. In August, 13 S&P 500 companies announced dividend increases, but only two companies announced a dividend cut. Remember, a company will generally only increase dividends if it believes that it can maintain that dividend in the future. Overall, this appears to be an indication that these companies believe the worst of the economic crisis may be over.

Loyalty Backed Bonds

Delta announced that it would issue $6.5 billion worth of new bonds. What is particularly interesting is that the bonds will be backed by the company's SkyMiles loyalty program. Although Delta did not disclose the value of SkyMiles in the announcement, United Airlines issued debt in June backed by that company's MileagePlus program, which it valued at $20 billion.

NPR Goes Junk

 A recent podcast from Planet Money on NPR details the purchase of a junk bond issued by Hornbeck Offshore. Hopefully, the initial purchase was designed for the podcast, not as an investment. For example, the bond was purchased because it had the lowest price, which means the bond had the highest yield to maturity because it was likely the closest to bankruptcy. If you listen to the podcast, you will find out that the company did eventually go through a bankruptcy reorganization. One of the most perceptive comments made after the bond was initially purchased was that it would not likely make it to maturity. The podcast is worth a listen since it is an interesting journey of the purchase of a junk bond through the bankruptcy process.

BMW's Operating Leverage

 A recent Wall Street Journal article highlights the operating leverage for several auto manufacturers. For example, BMW lost €666 million ($784.1 million) during the most recent quarter. A large part of the loss was due to the company's operating leverage. BMW loses $.43 for every dollar of lost sales, which of course means that the company gains $.43 for every increased dollar of sales. By way of comparison, Fiat Chrysler's operating leverage is about 18%, GM's is about 20%, and Ford's is about 25%. As a result, we would expect BMW's earnings to be more volatile when compared to other auto companies.

Currency Fluctuations Damage Earnings

In its latest report, Kyriba estimates that North America companies earnings fell by $10.77 billion due to currency fluctuations last quarter. The most common currencies affecting earnings were the Brazilian real, the euro, and the Mexican peso. The industry that was most affected was Healthcare Equipment & Supply. In contrast, European companies had a negative earnings impact of $1.44 billion.

Amazon Acqui-Hires Zoox

Amazon offered $1.3 billion to buy Zoox last month. So what are you buying when you buy a tech company? Since there are often limited fixed assets, generally, you are seeking to get the employees. In this case, two Zoox senior engineers had already accepted offers from other companies. So Amazon upped the offer by $100 million to compensate the employees who stay after the acquisition. The new condition of the acquisition is that all of the employees on a "key list" must stay and at least 19 employees on a second list must stay. Finally, three schedules of other employees was created. 90 percent of the employees on the first two schedules must stay and 88 percent on the lowest schedule must stay, otherwise, Amazon can walk away from the deal.

Kia's Home Run

When Kia debuted the Telluride, the company set production capacity at 60,000 units. Demand was so high that the company upped production to 100,000 units, but one couple has already waited 9 months for their SUV and they were told to expect another 5-6 month wait. A production shutdown due to COVID-19 has slowed delivery and once production restarted, a parts shortage still limited manufacturing. Obviously, sales of the Telluride is a best-case scenario for Kia, although production difficulties means the best-case has been limited to date. One other thing we want you to note is terminology. The article states that the turn rate was 11 days for most of the year, but it is currently at 0 days. The turn rate is the same as the days' sales in inventory ratio we discussed in the textbook.