In the last post, we talked about enterprise value and how you could use it to avoid making potentially loss making investments in dividend plays which were unsustainable.

You can check it out here:

What is enterprise value and how can it help you avoid losing money? [Case Study: Asian Pay TV]

Another company which debuted to great fanfare but has languished over the last few years has been Hutchinson Port Trust.

Digging deeper

A typical characteristic of companies with high debt load are that they are extremely capital intensive in nature and require continual investment. This makes the dividend vulnerable in the case of

  1. Industry downturn
  2. Increase in CAPEX expenditures
  3. Increase in interest rates
  4. If management decides to pay down existing debt

CAPEX expenditures (also known as capital expenditures or purchases of property, plant and equipment (PPE)) is money used by the business to acquire, upgrade, and maintain physical assets …