Dividends4Life: Dividend Stocks Issuing More Debt

Dividend Stocks Issuing More Debt

Posted by D4L | Sunday, January 01, 2012 | | 0 comments »

In most cases, companies have four business days to file a Form 8-K from the specified event, which can be triggered by accounting adjustments, new financial obligations, and changes in executive management, among other changes. Here we wanted to focus on Item 2.03 Creation of a Direct Financial Obligation. A company uses this filing to report an issuance of new debt, a credit facility with a bank, or an obligation not held on their balance sheet (such as operating leases or the debts of unconsolidated subsidiaries).

When a company files a form 8-K 2.03, it should bring up several questions from investors: Is the company issuing more debt than you think is prudent? Are they issuing more debt now than they have in the past? These questions are even more important for dividend stocks. Shareholders (and their dividends) are always paid after debtholders because of the legal structure of debt arrangements. This means that rising levels of debt form a wedge between a firm’s value and a firm’s value to shareholders.

Source: NASDAQ

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