Motley Fool: Streaming profits

Streaming giant Netflix (Nasdaq: NFLX) has had quite the ride this year, including a recent stock price drop of some 43% from its 52-week high, in part because of concerns about slowing growth and increasing competition. But there’s still a lot to like about Netflix.

For starters, it remains the leader in streaming, with aggressive content spending, superb execution, global reach and economies of scale. The company’s fourth-quarter earnings report revealed subscribers remaining engaged, with low turnover.

Management was also confident enough to raise prices for U.S. and Canadian customers recently. Netflix has been able to raise prices in the past without much long-term damage to subscriber growth, reflecting considerable pricing power.

The company is returning to positive free cash flow, too. Netflix might have had positive free cash flow earlier, but it opted to spend vast sums developing its own original content. Management predicts positive free cash flow in 2022, and once it pays down debt to its target level, it can begin returning cash to shareholders via share repurchases.

Netflix’s stock may not look cheap, with a recent price-to-earnings (P/E) ratio in the mid-30s, but that’s well below the five-year average of 133. With its earnings likely to grow by leaps and bounds in the coming years as Netflix continues to grow revenue faster than costs, it’s worth consideration. (The Motley Fool owns shares of and has recommended Netflix.)

Ask the Fool

Q: When a stock in a mutual fund pays out a dividend, where does it go? – E.P., Spokane

A: The stock dividend goes first to the mutual fund, which holds onto it temporarily. The fund then typically pays the total dividends received per share in a distribution to shareholders, generally quarterly or annually.

You’ll often be asked, when you first invest in a mutual fund, whether you want to receive dividend payments in cash or to have them reinvested in additional shares – or fractions of shares – of the fund. Reinvesting dividends is a great way to grow value faster.

Q: Can I claim a loss on some worthless shares of stock without selling them? – I.S., Dalton, Georgia

A: Yes, but the shares can’t just have fallen by 90% or more – they must truly be worthless in the eyes of the IRS, and you should be prepared to prove their worthlessness.

For tax purposes, you’ll treat the worthless stock as an asset you sold on the last day of the year for $0, and you’ll claim the loss on Form 8949.

The form has two sections, for short-term losses (from assets held a year or less) and long-term losses (from assets held more than a year). You’ll need to classify your loss accordingly.

If your shares are nearly worthless, your brokerage may help you out by buying them from you for a pittance, just to close out your position.

That way, you’ll have a realized loss that you can claim on your tax return.

You can learn more about reporting losses (and gains) on your tax return at IRS.gov. Remember that you can offset capital gains with your capital losses, thereby shrinking your tax bill.

My dumbest investment

My dumbest investment was a timeshare in Hawaii. – Dan, online

The Fool responds: Timeshares are shared ownerships of real estate, typically for vacation purposes, giving owners the right to use a property for a certain period. They’re controversial; along with the benefits they offer, they also present significant drawbacks.

On the plus side, they tend to cost much less than if you bought a vacation home, and they sometimes permit you to apply your share at properties in different locations. You don’t have to clean and maintain them, either.

On the other hand, you do pay for cleaning and maintenance, and you’ll typically be charged fees annually, which can increase over time. Arguably the biggest problem is that they can be very hard to get rid of. Many owners are trying to sell theirs at a discount, so you shouldn’t imagine that you can easily sell and get much of your investment back.

While lots of businesses offer to help timeshare owners sell their shares, many of these have been flagged as problematic schemes – or worse. The Federal Trade Commission has announced actions against scores of them, alleging fraud.

The timeshare industry is known for high-pressure sales tactics. Consumers shouldn’t fall for them, and it’s important to do a lot of research before buying a timeshare. Better still, consider avoiding this investment entirely.