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79.25% Even within this sample, there are some warning signals that should be heeded. First,
consider the numerous energy companies that make the list. Since this portfolio was
constructed in the aftermath of the accounting debacle at Enron, the possibility that the
stated earnings at these firms may also be contaminated is one reason why stock prices are
depressed. If the earnings at these companies are over stated, their dividends will have to be
cut in future periods. Second, note that there are a couple of tobacco companies that also
make the list. For these firms, the specter of large judgments in lawsuits overhangs the
earnings; a few such judgments may very well result in the elimination or reduction of
dividends. Note, though, that you are not arguing that these stocks should be avoided but
that you need to do your homework before buying these stocks. In practical t...
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- Spring '11