Motley Fool Money - Summer Q&A: 48% Dividend Yield, FinTech, Small Cap Energy Stocks

Episode Date: July 30, 2022

You've got question so we rounded up a wide range of Fools with some answers! In this summer mailbag we’re answering listener voicemails and emails about: - Whether a stock paying a 48% dividend yield is real or a mirage - Lesser-known energy and tech companies that may be worth your attention - How the student-loan pause is impacting SoFi - Saving in a 401(k) and being a stock investor Got a question for the show? Leave us a voicemail at 703-254-1445. Stocks mentioned: MDB, SOFI, STEM, ZIM, FLNC, ENPH Host: Chris Hill Guests: Robert Brokamp, Tim Beyers, Matt Argersinger, Matt Frankel, Jim Mueller Producer: Ricky Mulvey Engineers: Rick Engdahl, Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finalies of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh, boy. Fantastic. You guys go hard. Daredevil Born Again, official podcast Tuesdays, and stream Season 2 of Marvel Television's Daredevil Born Again on Disney Plus. Hey Chris, it's Kevin from Connecticut. I'm interested in learning about the green energy sector, specifically STEM and fluence energy,

and maybe a little end phase too. All right, thank you guys. Hey, Kevin in Connecticut. It's Chris Hill. Great question, and we've got a Motley Fool energy analyst lined up to answer it later on in the show. It's time to dip into the fool mailbag. Today, we are answering the questions that you emailed or left on our voicemail. It's kind of like a lightning round you might see on another.

investing show, except we're actually going to take some time to answer your questions, and we're not going to yell at you. First up, Matt Argusinger answers a question about a shipping company paying investors a 48% dividend yield. Hi, guys, love the show. My name's Nick. I'm calling from San Francisco. My question is, I recently came across ticker symbol ZIM integrated shipping services. I've never heard of it. It's out of Israel. The dividend yield is 48.13%. It IPOed in 2021.

Is it possible for a dividend to ever even be that high? I bought half a share just to keep my eye on it. Love to hear some of your advice and your in-depth knowledge. Thanks so much. Have a good one. Hey, Nick. Thanks for the question on Zim integrated shipping. Took a look at it. And yeah, unfortunately, that 48% dividend yield, which looks incredible, is a bit of a mirage. And let me explain. So this is, as you pointed out, this is an Israeli-based company. They're involved in container

shipping. And what's happened is this business has just boomed. Because as we know, as the economy started to recover in 2020, and then really got going to go. in 2021, freight rates have just soared, actually, exponentially. And so just put that in context. So Zim in 2019, so pre-pandemic, reported operating profits of $114 million. In 2021, I couldn't believe this when I saw the number, they reported operating profits of $5.8 billion. So they went from $114 million, which I would argue is probably their more normalized operating

profit level to 5.8 billion. That's because the exponential rise in freight rates fell right to the bottom line for the company. And their expenses didn't go up that much, yet they had so much more revenue. Like a lot of international companies, Zim pays a dividend that's tied to net income. So their ordinary dividend is based on 20% of net income. So what happened was their income soared, so did the dividend. And in 2021, late 2021, they elected to pay a special dividend of $17 per share just because they had such high earnings. So you add all the ordinary dividend together, the extraordinary dividend, and you end up with a 48% dividend yield over the trailing 12 months. I don't think that's sustainable because you're already seeing freight rates roll over a little bit. they're going to come down to a normalized rate.

So Zim's revenue, while it might not come down to pre-pandemic levels, it's going to come down quite a bit, and so will the dividend. So, again, not a sustainable dividend at 48% dividend yield, but probably a dividend-paying company, as long as profits continue. And there might have been sort of a change in freight rates so that they're going to be higher on a more normalized basis. So that's great for the business, but certainly that dividend yield, I'd expect that come way, way down. Thanks for the question, Nick. Next up, we've got a question about a rapidly

growing database company. We're going to send that tech question over to Tim Byers. I'm wondering if you guys could cover MongoDB. I just know it's a relatively low market cap. I think it's around 18 billion right now. And I read up on it and it seemed like they had a pretty wide mode for such a small market cap company. And I didn't really see too much competition. comes to companies like that, it's kind of hard to understand fully what they do, and I was wondering if you guys could cover it. Thank you. So this is a really interesting question. MongoDB started in, gosh, 2007. It's been around for quite a long period of time, and it's classically what's known as a document database. And so,

in a way, there is a lot of competition here. There are a whole bunch of document databases. Couchbase is one. Redis is another that's sometimes called a cache. There are a lot of these databases that are classically bucketed to what's called a no-SQL database, which is not only SQL. And the way to think about them is that they capture data that doesn't easily fit in columns and rows pretty elegantly. There are basically broadly two types of databases. One's called a relational database. You should classically think of that as Oracle. And then these NoSQL, more unstructured databases, sometimes they're called document databases or even a JSON database, which basically it takes data, all kinds of data from numbers all the way through to images,

sound, metadata, other types of data, and captures it in a document. So it's a little harder to get information out of a document database, and it's a lot easier to get it out of a relational database. But it's highly flexible. I mean, you may notice that the amount of data that we're generating right now is not only massive, but it's a wide variety of data. We're doing all sorts of things. There's lots of data coming out of social feeds. For example, everything from TikTok to LinkedIn to Twitter, all of this stuff is highly relevant, and it's easier to capture in a document database. But probably the thing that's most interesting about MongoDB is it makes it really easy to create software. Whenever you're creating software, you need somewhere to store data. So every

application that does something operationally, meaning it interfaces with a user and then a user inputs some data and that database needs to store it, store that data. So you want a database when you're making software. And MongoDB is an easy one to just say like, you know what, I can try this for free. It exists in the cloud, and I'm just going to attach it to my software application, and I'll do something fast and stand it up

and hand it off to users to test and see what they think. It didn't always used to be that way. And so when MongoDB came out with its first document databases, I would say it was a little bit revolutionary, in the sense that it made it a whole lot easier to start building software and testing it really quickly. Because before that, what we were doing is if you had a software application idea, you would select your database, you would do a lot of work to structure it up properly, and then you'd create the software.

And so if your software wasn't working or it didn't really work for users, you had to go back and fix a whole lot more. So this has made the software creation process a whole lot more accelerated. So that's one of the things that document databases like MongoDB did. And you're right, it does have a moat because it's very popular with developers. Just going by the most recent 10Q, that's the quarterly report. The main MongoDB software has been downloaded more than 265 million times since 2009, and over 90 million times in the last 12 months alone, that is extraordinary.

It's also the fifth most popular database in the world, according to DB engines. And it's getting more simple and easy to adopt because it exists in the cloud. There's a version of MongoDB now called Atlas, which exists entirely in the cloud. It's available across all of the major public clouds. And that version now accounts for 60% of all revenue. And that version of MongoDB is growing 82% year over year in the most recent quarter. So very popular at developers, very easy to use, available on all the public clouds, and is growing at a blistering pace. Yes, this one has a bit of a mode.

It's a very interesting growth story. And I think overall, if you believe that we need databases, and we do, and we think that we think that, more database software is going to be no SQL in the future because the velocity and variety of data is changing, then MongoDB is an interesting choice. It's very expensive, so I would call it a more speculative pick, but it certainly is a very interesting rule-breaking pick, and I think it deserves maybe a small position in any portfolio. So that's what I think of it. Thanks for tuning in to Motley Full Money. I'm Tim Byers. Full on. If you've got a question for the show, our voicemail number is 703-254-1445.

The personal finance company, SO-Fi, is going through a rough stretch in 2022, like many other specs. So should a tamp-down valuation get your attention? Matt Frankel has more. Hey guys, this is Chris from Detroit. Love the show. I was hoping you guys could talk about SO-Fi. It's pretty properly in the process of doing a potential shelf offering.

They recently had their bank charter news. So I was hoping if you guys could talk a little bit about SOFI to see if it's a good investment, the soccer pulled back quite a bit from where it was. We'll love to hear you guys' feedback. Thank you so much. Love what you guys are going with it. You're right. SoFi has been beaten down a lot recently.

It's down about 75% from its highs. It's about 40% below where it went public as a SPAC based on its original valuation that insiders paid. And there are some good reasons for it. The student loan pause is a big one. SoFi is now known as kind of a big ecosystem of banking. But at its heart, its original business with student loan refinancing, that's still a big, big part of its business. It has over a million student loan refinance customers. And with the moratorium in place where you don't have to pay your federal student loans, I don't know who in their right mind would be refinancing their student loans right now in this market, unless you already had private loans. So that,

That's been a big kind of drag on the company, especially because it keeps being extended over and over and over again. But there's a lot of reasons to like SoFi. They're really one of the only online banks that's trying to really disrupt the status quo. Pretty much every other online banking institution has been kind of in the mindset of, okay, use us in addition to your Wells Fargo, Bank of America, whatever. Maybe put your savings account with us because we pay more interest, but your checking account is still going to be more convenient over there, things like SoFi's motto is break up with bad banking, and it really tries to just one-up banks in every way. It's checking in savings products pay a 1.8% APY right now.

That's compared to about 0.1% for the national average with big banks. There's no account fees if you're annoyed by having to jump through hoops, arrange your direct deposits to avoid a monthly account fee. You don't have to do that with SOFI. The ATM network's bigger than your brick-and-mortar bank, making it kind of easier to get your money. their investing product is designed to be easier and better than normal brokerages, like, say, a TD Ameritrade or Schwab or things like that. They offer everyday investors access to IPOs, for example. They offer fractional shares. They offer cryptocurrencies right in the same account

you can buy stocks in, which is kind of a rarity. They have a credit card that is 3% cash back if you also have a checking account with them. Their loan products are designed to be better than what the traditional banks offer. Personal loans up to $100,000 is about the best, the highest amount in the business. There's student loan refinancing, which right now isn't a great product, but in normal times, they're offering fixed rates as low as 3.49%, which is really a lot lower than most people have their federal student loans. My student loans are at about 6%. So if there was no shot, they would be forgiven, I would absolutely be refinancing into that. So they're trying to disrupt banking in always possible and it's really working. Just a couple of key numbers, their membership base is up 70%

over the past year. The amount of products, meaning individual things that their members are using, is up 84%, which means that members are starting to adopt more than one product with the company. The average member has about 1.5 products, say like a loaner and a credit card or a loan and investment account. Over 1.5 products per member, that's up from 1.2 products per member two years ago, so their kind of cross-selling technique is definitely working. The biggest growth is in financial servicing. Their investment platform is catching on tremendously 1.8 million members of their investment platform already. 1.6 million banking customers that have used so as they're checking and savings account. It's translating into revenue growth pretty nicely.

Revenue was up 50% year every year in the first quarter. They are profitable on an adjusted basis, not on a gap basis, but that will come over time. They're well capitalized. They got a lot of money when they went public by SPAC. You mentioned they recently got a bank charter. They capitalized their bank with $750 million of their own cash. The bank charter should translate to nice cost advantages over time. Having the bank charter is what lets them set their interest rate pricing, for example. That's how they're able to offer 1.8% on checking and savings accounts. So that has a lot of advantages that aren't fully reflected in the numbers yet because it's so new. They're expecting a really strong year. They're expecting about $1.5 billion of revenue. They revised it down a little bit because

of the student loan issues. But the rest of their business is growing phenomenally. I think they're investing their money in very wise ways. A lot of people thought they overpaid for the SoFi Stadium rights where they had just had the Super Bowl last year. And I think that just did wonders for their brand recognition that is well beyond what they paid for it. I'd like to see them show a clearer path toward gap profitability, but with the growth they're posting right now and the amount of capital they have on hand, it's not a deal breaker for me. I've bought so-fi several times in the recent market downturn. It's not my biggest bank position, but it's one that I think has a lot of potential over the years. And at roughly a $5 billion market cap at a bank

with almost 4 million customers, that's pretty compelling valuation, especially if their products continue to catch on over the long term. So that's where I'm at with SoFi. I know it's troubling to see it down so much from the highs, but it's a lot of short-term headwinds that don't have a lot to do with the long-term health of the business. And from a long-term standpoint, their momentum is definitely moving in the right direction. So thanks for your question and hope that answered it. One listener was interested in a closer look at STEM, a small-cap energy company. So we called up Jim Mueller to provide one. Hey, Chris, it's Kevin from Connecticut.

I'm interested in learning about the green energy sector, specifically STEM and Fluence Energy, and maybe a little end phase too. All right, thank you guys. Hi, Kevin. My name is Jim Mueller. I'm the Energy Insatter-A advisor. And for the past year, I've been picking renewable energy, green energy companies for that service. So you might take a look at that.

Stem is actually one of our picks. And I can talk a bit about that answering our research. question. STEM and Fluence are both in the same business, and they do compete with each other. STEM is in, I believe, is an independent company while Fluence is a joint venture owned by both Siemens and AES. And what they do is they provide battery storage and control of that storage and how the energy gets into the battery and how it comes out in order to smooth out how energy is provided to the customer or to the grids. They serve two different types of customers, business customers. And so these are companies like Walmart and Target that have maybe solar panels

on their roof and also attach to the grid. And they have this battery storage so that when there's a lot of electricity being generated by those panels, some of it goes into the battery storage so that when less is being generated, stems and fluences systems can help feed that battery storage back into the use of the company as well as feeding it back into the grid. And the overall effect is to help lower the customer's energy bill. For power generating customers such as utilities or just power generators, they provide the storage and smoothing of the flow of electricity from that production of renewable energy, such as from solar panels or wind farms. Mostly solar, though. Both of them provide both batteries and software to the customers, and the contracts for both are generally long-term.

Stem, for example, 10 to 20-year contracts, and so very nice visibility into future revenue. Battery storage as a whole is expected to grow by about 25 times over the next decade or so. So lots of room for growth for both companies. STEM's projected revenue for this year is about $400 million, just shy of $400 million at the midpoint of their guidance, while Fluent is about three times more at $1.2 billion at their midpoint. Both are growing their revenue pretty handily, but STEM is growing a bit faster recently. STEM has actually gross profits over the past four quarters, the trailing 12-month or TTM period, but is still losing money on a net basis and cash flow.

Fluence has gross losses over the TTM period and is also losing money on a net basis and cash flow basis as well. Both companies are somewhat concentrated in customers. STEM, their top three account for about 51% of revenue, while Fluency Energy's top five customers account for about 76% of the total revenue. So that's a bit of a risk for both companies if one of those customers decides to go to a competitor. Given the expected growth in storage and the control of storage

and feeding in and out of the batteries to smooth everything out, I expect both will do pretty well as multi-year holdings over time. You also mentioned Enphase. Enphase is a provider of inverters. And what an inverter does is it when a wind power or solar power is used to create electricity, that electricity is DC current. That has to be changed to AC current that we all use around the world in our electricity. And so that's the job of the inverter. N-phase makes micro-inverters, so it's doing that job, that inverting at every single panel on the installation, or sometimes

maybe a group of two or four panels. The other choice for an inverter is something called a string inverter. Solar Edge, for example, makes string inverters. And they're both a way to do this. There are some advantages to each and some disadvantages to each. For example, for microinverters, when one panel is not producing fully, that does not degrade the output performance of the other panels, unlike with a string inverter. There's a string inverter takes all the panels together, and the lowest producer is the one that dictates the output.

But micros are more expensive because, of course, there's more hardware involved and more installation. They're harder to install. They're harder to troubleshoot, but they allow a much easier expansion of any given system. string inverters, on the other hand, are less expensive because there's only one, maybe two in an installation, such as on your roof. They're easy to troubleshoot and they're easy to install, but on the other hand, if you expand your solar panel setup, it's more difficult to do that with a string inverter. N-phase and solar edge together dominate the inverter market with, I believe, N-phase holding of the larger position. Don't quote me on that, but I think that's right. and they have really nice revenue growth,

64% year over year for the TTM trailing 12-month period. They're also cash flow positive, generating free cash flow, so I think an investment there would not be a, would not hurt. Let's put it that way. So I hope that answer to your questions. And if you have any others, just come to the discussion boards for these various companies in the premium section of the full discussion system.

Thanks for a question. And finally, some of you emailed some personal finance questions to podcasts at fool.com. For that, we're going to our man, Robert Brokamp. Our first one comes from Ed in Reno, Nevada. He says, hello there, love the podcasts and the epic bundle. I'm 37 years old. And while I've been interested and intrigued by the stock market, I only started buying equities in a post-tax account during the pandemic.

I put 8% of my paycheck in the company 401K. They match 4%. but I'm not near the annual individual max contribution yet. So I put another 4% in my post-tax account to buy some of the wonderful recommendations from the full, even if it's just a share or two at a time. I find the picking of individual stocks is really interesting, and it could expose me to more potential upside in the long run should I land a few big winners. Does the fund interest knowledge and excitement, though,

offset the fact that I'm not maxing out my 401K? Well, it's definitely good to be aware of the match. You want to definitely contribute enough to take full advantage of that. Now, it sounds to me like you feel like you can't buy individual stocks in your 401K. I would confirm, though, because increasingly 401K plans have something that's called a side brokerage account that allows you to buy stocks, other mutual funds, ETFs, index funds. So make sure that's not available to you. And if it's not, maybe ask your employer to include it as a feature of your 401K. Now, beyond that, if you'd like to invest for your retirement and by individual stocks, I got a great deal for you. It's called the IRA.

And if you're in a middle income tax bracket or lower, the Roth IRA is probably the way to go. When you contribute to a Roth, you don't get a tax break. But as long as you follow the rules, the investments will grow tax-free. And there's nothing better to have in retirement than tax-free assets. Now, the ability to contribute to a Roth IRA does begin to phase out at a certain income level for this year at a modified adjusted gross income of $144,000 if you're single or $214,000 if you're married filing jointly. Now, if you make too much, there is something called the backdoor Roth, which is kind of complicated, so I won't go into the details, but you could also contribute to a traditional

IRA. And for those who are not covered by a retirement plan at work, contributions to a traditional IRA are always tax deductible. Now, because Ed is covered by a retirement plan at work, the ability to deduct the contributions to a traditional IRA begin to phase out $68,000 for singles, $109,000 for joint filers. With the traditional IRA, you may or may not get the deduction. The investments grow tax deferred, but when you take that money out in retirement, it's going to be counted as ordinary income. So that's taxed about your tax bracket. Now, Ed's contributing to to a regular taxable broker's account, which, by the way, also has tax advantages.

Primarily, the profits on investments that have been held for at least a year are tax as long-term capital gains. That's a rate that is actually lower than ordinary income or your tax bracket. Plus, for investments that have dropped below the price that you have paid, you can do some tax loss harvesting that offsets capital gains. It could reduce your tax bill every year if you do it right. And you can't do tax loss harvesting in an IRA. Also, if you take out money from an IRA before age 59. You might pay a 10% penalty. There are a few exceptions, but you should definitely think of it as money you leave a loan

until you retire. But with money in a taxable brokerage account, you can sell at any time penalty-free, maybe because you have another financial goal like buying a house or something like that. So to sum it up for Ed, definitely want to contribute to the 401k up to the point where he's getting the full match, then contribute to an IRA. But he could also invest some money in the regular brokerage account, especially if he wants to use that money before he retires. Our next question comes from Sohan in Seattle, Washington.

Sohan writes, love your podcast. I'm definitely a more knowledgeable investor today than I was before I started listening to your show. Oh, thanks, Sohan. My question for you is on a fundamental investment strategy. I hear you talk a lot about managing a diverse portfolio of 30 to 40 stocks. What about an alternate strategy of not owning individual stocks? but instead owning a diversified portfolio of ETFs and bonds.

I really like John Bogle's book called The Little Book of Common Sense investing in platforms like Betterment to help me invest using that strategy. This way, my returns are closer to what the market returns on average, and I reduce the risk of losing money long term. What do you think about this approach? Well, so, Han, I think that's a perfectly fine approach, actually. We're actually big fans of John Bogle at the Matley Fool. In fact, we have a room named after him in one of our offices.

And one of the services I run here at The Fool has real money model portfolios filled out exclusively with low-cost ETFs. And by real money, I mean, The Fool has invested its own money in these ETSs as I have. So I think it's a perfectly fine strategy. As you mentioned, there are various firms often referred to as like Robo Advisors, like Betterment, Wealthfront, those folks who will manage these portfolios for you. And many target date funds, especially those from Vanguard and BlackRock, provide a similar low-cost, well-diversified portfolio. That said, this isn't an either-or situation. You're going to have one portion of your portfolio in a diversified mix of ETFs, but with another portion, you

build a diversified portfolio of individual stocks. And these days, with most brokerages not charging commissions and some offering fractional shares, that is, you can buy 1.20th of a share, it doesn't take a lot of money to build a portfolio of 25 to 30 to 40 stocks. In fact, this is what I do. My portfolio is a mix of index funds, subactively managed funds, and individual stocks. Because the evidence is clear that indexing is a winning long-term strategy. But I do also enjoy following some individual companies. In fact, the percentage of my portfolio that is devoted to individual stocks has almost doubled over the last 15 years because the stocks as a group have done pretty well.

But there's no guarantee that will continue. So I make sure that my retirement is riding on a foundation of low-cost index investments to make sure that I at least capture the market's overall returns. Our last question comes from Taylor. She's in Miami, Florida. She writes us, quote, I'm in my 20s, but I've been listening to the show for almost half my life now. I wanted your opinion on averaging down. Traditionally, averaging down on a stock is considered a poor strategy. As often said, you're putting good money after bad money. I was wondering if you guys see it that way. I'm asking because the last two years has been such a volatile time to be

investing. It seems like stocks are being dragged down just because of the macro environment we are in. Since I just started my investing journey, if I bought a stock that drops 15, 20%, along with a few bad days in the market, but there's no specific news about the company, wouldn't it be a good idea to snatch up a few more shares at a lower cost basis, especially if my investing thesis has not changed, and I plan to hold on to these shares for at least 10 years. Thank you. Love the show. Well, thank you, Taylor. And by the way, I'm impressed that you started to think about investing in your personal finances at such a young age. Just so we're all on the same page, averaging down is essentially buying more shares of a stock that you already own after the price has dropped.

And this rules will result in a lower cost basis. So let's think of an example. Let's say you bought 100 shares at $100 a share. And then you buy another 100 shares after it drops to $50. You've now brought the average cost basis down from $100 to $75. So that's where that averaging down term comes from. And you're right that many folks, including many fools, suggest that it's better to focus on your winners than your losers. Or some might say, water the flowers, pull the weeds. However, that's just really a general philosophy.

And how you approach the decline in a particular stock you own will depend on your assessment of the reason for the decline. Has something fundamentally changed about the business? or is something else going on? Maybe the market is just kind of overreacting to something that you think is a temporary blip in maybe the company's earnings report or something the CEO said. Or just maybe it's being dragged down with the rest of its industry or the overall market. There have been days this year when almost every stock is down just because investors are panicking, not because every single company has diminished future prospects.

So, if you feel that you know a company well and that a price decline has gone too far, by all means, see that as an opportunity to buy something while it's on sale. Our email is Podcasts at Fool.com. Thank you for the questions and thank you, bro, for helping us answer them. My pleasure. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy ourselves stocks based solely on what you hear.

I'm Chris Hill. Thanks for listening. We'll see you tomorrow.