Motley Fool: A fintech powerhouse

Block (NYSE: SQ), formerly known as Square, is home to the Square platform, Cash App, Spiral, Tidal and TBD. The company dramatically underperformed the market in 2022; Reasons included recession-restricted consumer spending and fears surrounding its (expensive) Afterpay acquisition.

However, this is still an impressive financial technology (“fintech”) disruptor with plenty of room to grow the ecosystem. Through Square, Block offers everything from point-of-sale, or POS, systems and payment processing services to marketing software and deposit accounts. It has grown Square internationally and added larger customers, while processing more than $200 billion in annual volume.

Meanwhile, more than 49 million people are actively using the Cash App. While Square simplifies commerce for merchants, Cash App aims to simplify money management for consumers. It brings together ways to send, spend, borrow and invest money on a single platform, a convenience that is particularly appealing to younger generations. Cash App ranked as the most downloaded financial app in the US in 2022, with more downloads than PayPal and Venmo combined.

As more features are added to these platforms, they will become even stickier over time. With an estimated $185 trillion in payment volume worldwide, the company could be on a roll. (The Motley Fool owns shares in and has recommended Block.)

Ask the fool

Q. Is it best to invest in companies with lots of cash and no debt? – MT, New Orleans

ONE. Not necessarily. A lot of cash is generally good for a company, as it can (for example) allow it to invest in growth or pay dividends to shareholders. Companies with plenty of cash can take advantage of the opportunities ahead. But it is not optimal to have much more cash than can be put to good use – so some companies aim to have low cash reserves, and plan to borrow money when needed. (However, this strategy is less attractive when interest rates are high.)

Meanwhile, it’s generally OK for a company to have a manageable amount of debt—especially at low interest rates. If it is borrowing at a relatively low interest rate while you get good results from the money, it is an effective strategy.

Q. What is a “high yielding” stock? – SC, Elkhart, Indiana

ONE. There’s no official definition, but it’s generally one with a dividend yield that tops (or significantly tops) some benchmark, such as the 10-year US Treasury bond – which recently yielded 3.7%.

A stock’s dividend yield is the current annual dividend amount divided by the stock’s current price. So if Home Surgery Kits Co. (ticker: OUCHH) trades at $100 per share while paying $1 per share in dividends each quarter (for a total of $4 per year), the dividend yield would be $4 divided by $100, resulting in 0.04, or 4%.

Do not invest in any high yielding stock without researching it first. When a share price falls, its yield rises, and vice versa – so an ultra-high yield may reflect a company in trouble, while another may reflect a healthy company with plenty of cash to spare.

My dumbest investment

My worst investment? When General Motors shares fell below $10 each, I went all in. I did the same with Washington Mutual. What a jerk I was. – E., online

The Fool replies: Don’t be so hard on yourself. You made an easy mistake. After all, if a stock’s price falls, it will appear to be more of a bargain. Before you buy more shares, however, you should look at why it has fallen. If it’s due to external or temporary factors, such as a general market downturn or supply chain issues that should be resolved soon, buying more can be effective: You’ll “average down,” shrinking the cost base or average price paid.

But in many cases, the company is struggling with major or lasting problems – so buying more stock is, as the old investment saying goes, “like trying to catch a falling knife.” It may be hard to imagine that a stock that has plunged, say, 60%, could plunge much further, but it can. And if the company’s problems are severe, it could end up filing for bankruptcy protection, which could leave shareholders with nothing.

Washington Mutual and General Motors ended up filing for bankruptcy in 2008 and 2009, respectively, and shareholders like you received little or nothing for their pre-bankruptcy shares. General Motors re-emerged in 2010, but Washington Mutual’s assets were sold to JPMorgan Chase.