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-constrained consumer spending and fears surrounding its (expensive) Afterpay acquisition.

However, this is still an impressive financial technology (“fintech”) disruptor with lots of room to grow its ecosystem. Through Square, Block offers everything from point-of-sale, or POS, systems and payment processing services to marketing software and deposit accounts. It’s been growing Square internationally and adding larger customers, while processing more than $200 billion in annualized volume.

Meanwhile, more than 49 million people actively use Cash App. Whereas Square simplifies commerce for sellers, 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’s especially appealing to younger generations. Cash App ranked as the most-downloaded finance app in the U.S. in 2022, with more downloads than PayPal and Venmo combined.

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

Ask the Fool

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

A. Not necessarily. Lots of cash is generally good for a company, as it can (for example) permit it to invest in growth or pay dividends to shareholders. Companies with ample cash can take advantage of opportunities that come along. But having much more cash than can be put to good use is not optimal – so some companies aim to have low cash balances, planning to borrow funds when needed. (This strategy is less attractive when interest rates are high, though.)

Meanwhile, it’s generally OK for a company to have a manageable amount of debt – especially at low interest rates. If it’s borrowing at a relatively low rate while getting great results from the money, that’s an effective strategy.

Q. What’s a “high-yield” stock? – S.C., Elkhart, Indiana

A. There’s no official definition, but it’s generally one with a dividend yield topping (or significantly topping) some benchmark, such as the 10-year U.S. Treasury note – 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 the Home Surgery Kits Co. (ticker: OUCHH) is trading at $100 per share while paying $1 per share in dividends each quarter (for a total of $4 per year), its dividend yield would be $4 divided by $100, resulting in 0.04, or 4%.

Don’t invest in any high-yield stock without researching it first. As a stock price falls, its yield rises, and vice versa – so one ultra-high yield might reflect a company in trouble, while another might reflect a healthy company with lots of cash to spare.

My dumbest investment

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

The Fool responds: Don’t be so hard on yourself. You made an easy-to-understand mistake. After all, if a stock’s price falls, it will seem to be more of a bargain. Before buying more shares, though, look into why it has fallen. If it’s because of external or temporary factors, such as an overall market meltdown or supply chain issues that should soon be resolved, buying more can be effective: You’d be “averaging down,” shrinking your cost basis, or average price paid.

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

Washington Mutual and General Motors did end up filing for bankruptcy in 2008 and 2009, respectively, with shareholders like you getting little to nothing for their pre-bankruptcy shares. General Motors emerged anew in 2010, but Washington Mutual’s assets were sold to JPMorgan Chase.