Ask the Fool: Social Security checks grow
Q. Are Social Security benefits increasing again in 2024? — H.G., Ashland, Kentucky
A. They are, indeed. Social Security benefits are adjusted for inflation via cost-of-living adjustments (“COLAs”) and are increased in most years. The increase for 2024 is 3.2% — close to the long-term average annual rate of inflation. Inflation has sometimes been high, which is why the 2023 increase was a hefty 8.7%, on the heels of 2022’s 5.9% bump. The nine increases before that were all less than 3%, with a 0% increase for 2016.
Q. Does a company’s management want its stock price to be high? — V.N., Honolulu
A. Typically, it does. But a stock’s price trending higher doesn’t mean that the company collects more income that way. The company received money for the shares when they were first issued, perhaps via an initial public offering (IPO) or a later additional stock offering. Afterward, the shares trade in the open market between investors who buy and sell them. (It’s a bit like a collectible card company making money by selling cards — after which the cards’ values rise and fall depending on what buyers and sellers think they’re worth.)
Still, a high stock price can be useful for a company. If it wants to buy another company with stock instead of cash, for example, it will need fewer shares to do so. And if it wants to raise money by issuing more shares, it will get more dollars per share. Employees who have stock options (including top executives) will also want a high stock price.
In contrast, a lower stock price means a lower total market value, making a company more vulnerable to being pursued by a would-be acquirer.
Fool’s school: Credit card mistakes
Credit cards are big business: As of last year, Americans had more than 570 million credit card accounts in total. But credit cards can help or hurt you, depending on how you use them. Here are some mistakes to avoid.
Try not to carry a balance on your card. The average credit card interest rate was recently well over 20%. If you’re carrying, say, $30,000 in debt and you’re being charged 20%, you’re facing annual payments of around $6,000 for the interest alone. Fail to pay all that interest, and your balance will grow. Credit card debt can easily spiral into financial disaster.
If you can’t avoid carrying a balance, be sure to pay more than the minimum due on your bill. Paying only the minimum will drag out the repayment of your debt and result in much more interest paid to your lender. Aim to pay the full balance due every month — and if you can’t, pay as much as you can. As soon as you’re free of high-interest-rate debt, you can start working toward goals such as saving for a down payment on a home or saving for retirement.
Also, don’t do things that can hurt your credit score because you’ll want as high a score as possible when you’d like to borrow money for a home, a car or something else. Late payments are a big no-no, as they’ll likely bring down your score. Fully 35% of a FICO credit score is tied to your payment history. Another 30% is tied to how much of your available credit you’re using. Lenders don’t like to see you maxing out your credit limit when they’re thinking of lending you more money, so aim to owe less than 50% of your credit limit; better would be 30% — or even 0%.
Credit cards can be a terrific financial convenience, and you can even profit from them if you carry some well-chosen cards offering rewards or cash back. Learn more at our sister site, TheAscent.com.
My dumbest investment: Too good to ignore
My most regrettable investment was spending $14,000 on shares of Seadrill because the dividend was just too good to ignore. I sold before its eventual bankruptcy, walking away with about $500. — D.P., online
The Fool responds: Seadrill, an offshore drilling specialist serving oil and gas companies, has actually filed for bankruptcy protection twice — in 2017 and in 2021. The fact that it’s still around is a reminder that filing for bankruptcy isn’t necessarily the end for a company. A Chapter 11 filing gives a company some time to reorganize itself and, hopefully, emerge in a healthier condition — often with new shares of stock. Its old shares are often left with little or no value, though.
Fat dividends are understandably enticing, but remember that a dividend yield is a simple fraction: the current annual dividend amount divided by the current stock price. So if the stock price sinks and the payout remains the same, the dividend yield will rise. For example, a quarterly $0.50 dividend is $2 annually. Divide that by an $80 stock price and you’ll get 0.025, or a 2.5% dividend yield. If the stock falls to $40, the yield will be $2 divided by $40, or 0.05 — 5%. Some steep yields are from healthy companies generating lots of cash, while others are from companies in trouble. Research any portfolio candidate before buying, and keep an eye on your holdings, too.
Foolish trivia: Name that company
I trace my roots to the 1961 launch of a discount grocery store in Germany. I opened my first U.S. store in Iowa in 1976. I now have over 2,000 stores in more than 35 states, with more than 25,000 workers. I’m also buying hundreds of Winn-Dixie and Harveys supermarkets. The two brothers who founded me split me up; their two current businesses own both me and Trader Joe’s. (I’m complicated!) I offer no-frills stores filled with brands such as Simply Nature and LiveGfree. You’ll need to lend me a quarter to use my shopping cart. Who am I?
Last week’s trivia answer
You may not know me yet, because I came to life only in May 2023. But I trace my roots back to the 1886 founding of Johnson & Johnson — the outfit that spun me off. I’m now an independent company, with a recent market value of $38 billion, a bit below my $41 billion valuation at my initial public offering (IPO). By revenue, I’m the world’s largest company focused purely on consumer health, with brands such as Aveeno, Band-Aid, Benadryl, Listerine, Motrin, Neutrogena, Nicorette, Tylenol and Zyrtec. My products are used by some 1.2 billion consumers worldwide. Who am I? (Answer: Kenvue)
The Motley Fool take: Promising PayPal
Financial technology (“fintech”) company PayPal Holdings (Nasdaq: PYPL) flourished early in the pandemic, as online shopping and digital payments grew strongly. But those tailwinds have faded, with inflation curbing growth. Pessimism has dragged the stock down over 83% from its all-time high. PayPal may never again grow as quickly as it did during that period, but the business remains solid, and shares recently traded at their cheapest valuation in history.
The company began to regain its financial momentum late last year. It delivered another round of solid results in the most recent quarter, with revenue up 7% to $7.3 billion and net income of $1 billion (up from a year-ago loss of $341 million).
PayPal is the most accepted digital wallet in North America and Europe, and it’s the clear leader in online payment processing: Its 41% market share is roughly equivalent to that of its next four competitors combined. That bodes well for the company.
The company’s recent partnership with Apple is also promising: U.S. consumers could add PayPal- and Venmo-branded credit and debit cards to their Apple Wallets. (PayPal owns Venmo, too.) That would allow them to be used via Apple Pay, the most popular in-store mobile wallet among U.S. consumers. (The Motley Fool owns shares of and has recommended PayPal.)
— distributed by Andrews McMeel Syndication