The Motley Fool: Netflix more attractive after recent drop

If you’re looking for fast growers and can stomach some risk, consider Netflix (NASDAQ: NFLX) for your portfolio. It recently reported some disappointing numbers for its second quarter, with its shares dropping to more attractive levels.

Netflix’s revenue rose 28 percent year over year to $2.1 billion, while earnings popped by 55 percent. So what was the problem? Well, it had expected 500,000 net new subscribers in the U.S., along with 2 million new international accounts. Instead, the domestic growth figure stopped at 160,000, and the overseas number was 1.5 million.

Subscriber growth is a critical measure for Netflix, and the market response was not entirely unfair but was probably overdone. Delivering 1.7 million new subscribers when you were hoping for 2.5 million sounds bad, but consider that Netflix grew its total subscriber count by 27 percent year over year, to 83.2 million. That’s roughly one percentage point short of its target.

It’s a miss, but not a wholesale disaster. Volatility is the norm in Netflix’s history, and the streaming giant should get back on track in the fourth quarter – after the Olympics distract consumers worldwide from other entertainment options for a while.

Considering that Netflix achieved these numbers while it implemented price increases in some territories, any growth at all could be seen as a vote of confidence. Patient believers may want to buy shares.

Ask the Fool

Q: What’s a dividend? – C.D., Kinston, North Carolina

A: Dividends are portions of earnings that many companies pay to their shareholders. For example, if Porcine Aviation (ticker: PGFLY) earns $2 per share in profit, it might decide to issue $1 annually to shareholders, typically paying out 25 cents per share every three months. It will use the remaining funds in other ways, such as buying more advertising, hiring more workers or paying down debt.

Pennies per share may seem paltry, but they add up. If you own 200 shares of a company that’s paying $2.50 per share in annual dividends, you’ll receive $500 per year from the company. On top of that, healthy companies generally increase their dividend amounts periodically, and the share price might appreciate, too. (Many smaller, faster growing companies or businesses without relatively predictable earnings don’t pay any dividends, but they can still offer stock price appreciation.)

Dividends are frequently expressed as a yield. A company’s dividend yield is its annual dividend divided by its current stock price. So a company paying $3 per year and trading for $60 per share would have a yield of 5 percent. (Three divided by 60 is 0.05.)

My dumbest investment

A few years back, as I had to stop working to care for my severely ill wife, I was looking for income stocks. Being a “smart” guy, I latched onto YPF. Here was a major oil company, the largest in Argentina. It had a generous dividend, was 51 percent owned by Spanish oil giant Repsol, had great offshore fields and significant ones on the continent. Then the president of Argentina simply decided to nationalize YPF. Oops! The stock plunged and the company stopped paying its dividend.

How was I dumb? Well, I should have thought about the following: Argentina was already in default on its debt and wasn’t as economically stable a country as America. If you’re investing in stocks outside the U.S., you should understand the nature of the political and economic system and the history of the countries in which you’re investing.

One of my worst errors was not doing any comparative analysis between YPF and other companies. These days, when considering a foreign company, I have usually found a U.S.-based company in the same industry that offers similar business fundamentals and the transparency of U.S. securities laws. – R., online

The Fool responds: Your lesson is a tough one, but a good reminder that the United States offers an especially favorable investing environment compared to many other countries. For example, it requires public companies to report on their progress each quarter.