Dividends and Petrobras seeks to raise nearly $27 billion by 2023

In Brazil, if you look offshore and under the sea, there are billions of barrels trapped below the salt line. The good news is everyone knows it is there, the bad news to bring the oil to the country will cost billions. Petrobras has been linked to many payments to politicians as it boosted its debt load of $88 billion. To lessen the debt load, and still keep investing according to an article by Gram Slattery and Alexander Alper of Reuters will try to raise $26.9 billion in asset sales and partnerships from now to 2023.

Petrobras in early December released its 5 year plan, and the assumption is oil prices will have a reasonable increase in prices to help the producer. Brazil also has a new government coming in that will need the oil revenues to balance the government books.

The oil company expects a rate of return on capital of 11% in 2020 and the ratio of net debt to earnings should fall to 1.5 from 2.5.

Linking to dividend paying stocks, state oil companies can be tremendous drivers of wealth as can be seen in Norway, but somewhere along the line it seems many countries do not spread the wealth as much as others. It seems Petrobras helped the political elite rather than the average consumer, but things can change as long as those billions of barrels lie under the ocean.

There are more questions than answers, till the next time – to raising questions.

Dividends and EU countries agree to require standard charging port for mobile devices

All consumer products go through a multiple of changes as they become the standard for consumers. For those who are older, you might remember VHS and Betamax tapes for the VCR, although no one makes them anymore we have all gone to discs, however 2 companies were investing in each technology expecting their technology to dominate. This is natural element in consumer goods, what will become the industry standard?

Most people in the world will never own a non mobile phone so they are interested in the phone clarity, the minutes you can talk and text, the videos and pictures you can take, etc. The least concern is to charge the phone. This is why although it takes time, standardization is coming to the mobile devices.

In an article from Reuters, the European Union is the third largest consumer market after the US and China, the European Commission has been dealing with complaints about charging Apple and Android phones – they use different chargers. It looks the safe but the connector is different. The EU wanted the standardization to happen and pass a law by 2024, all mobiles have to have the same connector. Apple will have to make changes to the charging.

iPhones are charged from a Lightning cable while Android based devices use a USB-C connectors, by 2024 all connectors sold in Europe will be USB Type C.

Linking to dividend paying stocks, all consumer goods eventually move to a standardization for the ease of use for the consumer. Picking the correct technology or lobbying the government to ensure the company picked the correct technology is a function for the company. Companies lobby for a number of reasons, trying to ensure the company is the standard can help the company save money in the future.

There are more questions than answers, till the next time – to raising questions.

Dividends and US considers lifting some Trump-era China tariffs to fight inflation

When former President Trump was in power, he would often say we should manufacture things in America and one method to encourage that was to impose tariffs on goods made outside of America. Countries around the world have been trying to ensure tariffs are balanced enough to encourage some manufacturing in their home country and importing from lower wage countries every since countries were formed.

There is no perfect solution and you can think about the industrial revolution was inexpensive cotton from America going to the UK to run the textile factories which sent cloth back to the US. That was replaced by India and now the great textile factories are in China. It takes time for the movement to take place but tariffs played a factor in the investment decisions.

In an article from Reuters, the US government is trying to fight inflation and one of the solutions is to to lift some of the tariffs on China that were place by former President Trump. The tariffs include household goods, bicycles. If the tariffs are lowered, the prices in the store should be less and consumers dollars will stretch a little more. One has to believe the tariffs imposed by Trump did not lead to greater manufacturing in the US or few would object to the lowering of the tariffs.

Linking to dividend paying stocks, every country in the world worries about their manufacturing base and would like things made in the country, some make it very easy others harder. Then the government changes and rules and regulations change, it is one of the concerns with non domestic sales of goods and services. If the company you have investments in, how does it handle changes in governments?

There are more questions than answers, till the next time – to raising questions.

Dividends and US to let Eni, Repsol ship Venezuelan crude to Europe

If you think about Venezuela, you may think about a country which should be a wealthy country similar to many Middle Eastern countries, however the country was mismanaged and has suffered greatly over the years. The country had a President who was very popular and ensured everyone in the country received an income but it was only sustainable on high oil prices. The country spent money, people in government spent money and soon the country was importing most of their goods and services. Then oil prices went down and the country was in debt, it tried to give oil for its debts. In the meantime, the US government backed the opposition and put sanctions on its oil industry. Now the US government main enemy is Russia, Venezuela is important again.

Europe needs and uses Russian oil, to diversify away from Russia, the US is looking to Venezuela to supply Europe.

In an article by Marianna Parraga and Matt Spetalnick of Reuters, the US State Department which had sanctions on Venezuelan oil and gas, gave approval for Italian oil company Eni SpA and Spanish company Repsol SA to ship oil to Europe or resuming oil for debt swaps.

Venezuela’s biggest customer is China which also receives oil and gas from Russia.

In Venezuela, the state oil company is called PDVSA and they have unpaid debts and late dividends to oil companies around the world. Other oil companies lobbying to be included are Chevron, India’s Oil and Natural Gas Corp and France’s Maurel & Prom SA. Former President Trump halted swaping oil for debt in a campaign to influence the Venezuelan election.

Linking to dividend paying stocks, governments have their own agenda and sometimes that is good for corporations and sometimes it is not. Commodities are located in countries around the world not worrying about the politics of the people of the land. Government agendas change with new governments and what was bad is good and what was good is bad. Ideally a company has holdings in reasonably stable countries where governments can come and go and companies have a long healthy profitable relationship with its people.

There are more questions than answers, till the next time – to raising questions.

Dividends and Burger King caught in legal web, thwarting Russian exit

When Russia decided to invade Ukraine, the western world decided to push back on the economy of Russia and many western companies were told by the government to not be involved in the Russian economy. For some it was relatively easy to implement, painful for the employees (who did nothing wrong, but they live in Russia) for other companies they had indirect holdings. In many countries, the American company wants partners and technically the partners are the company, the American company is just the face. Many people have read or watched a movie about the founding of McDonald’s and in their restaurants they have to maintain Quality, Quick and Cleanliness. In order to do that, McDonald’s often owns most of the locations (which technically makes it a real estate investment) as well as restaurant. However there are other models and Burger King’s parent Restaurants Brands International (RBI) followed the licensing route. The partners own the real estate, in this case RBI sells them the supplies and the manuals to ensure a Burger King is the same in Moscow as it is in New York.

In an article by Hilary Russ of Reuters, the formula for the joint venture partnership, including a master franchisee is harder to close the store. In March, RBI said it was trying to sell its stake in the joint venture. However in June the restaurants are still open with long line ups. Partly because McDonald’s which owned the real estate of all 80 stores could close down all the locations. The stores will open with a new name, and was sold to its local franchisee, but McDonald’s has the option to buy the business back with 15 years.

Burger King does not own its outlets, RBI owns 15% stake in Burger King Russia Ltd. The other partners are Russia’s state owned bank VTB , a private equity firm in Kyiv, Ukraine called Investment Capital Ukraine (ICU), and 30% owned by the master franchisee Alexander Kolobov.

The war in the Ukraine is not fought by the franchisees or the customers, it is the government and the Russian army, there is an argument made by lawyers it would be unfair to shut the restaurants down. Will Russian courts force the franchisee to stop operating? If RBI sells will it get fair market value or be a distressed sale? will the war be over sooner than later and then the sanctions will not apply?

Linking to dividend paying stocks, all companies at some time in their ventures consider diversification and there are many good reasons to doing so. There are different models to sell your goods and services to the world and when you do the world benefits from the company’s goods and services. If the company goes outside its borders and makes money, contributes to the profits of the company, analysts will write that is very good thing to be doing. Few will worry about exit strategies until the company loses money or wars happen, let us hope for peace.

There are more questions than answers, till the next time – to raising questions.

Dividends and Container shipping prices fall despite supply-chain problems

If you are near a railroad, evenly a train goes by and you can see many railcars carrying containers. Companies embraced containers and ships and ports were built to move goods from one country to another seemingly less expensive than to build the products in the home country. The system worked till it did not and then container prices jumped.

In an article by Irene Galea and Brent Jang, since March prices to ship containers have dropped 19% but retailers can not celebrate yet. There are still congestions in the global supply chain and changes in consumer spending.

The change in consumer spending is consumers are now spending more of their disposable income on services rather than household items.

The pictures of ships needed to be upload has decreased which is good news, however according to Drewry Shipping Consultants Ltd, a typical 40 foot container costs $7, 635, although compared to pre pandemic levels of $1,200 to $2,000 the cost is high but lower than March levels.

The war in Ukraine and the lockdown by the Chinese government of China resulted in fewer products being shipped which reduced pressure on container supply and brought prices down. That might change because the Chinese government opened up cities on June 1.

Annual trends in the industry are at play: May and June are typically the least expensive months of the year, before retailers start ordering stock for end of summer and Christmas season.

China COSCO Shipping Corp Ltd doubled its 2020 revenue to $51 billion, although costs rose to $30 billion.

Linking to dividend paying stocks, for retailers bringing in goods by containers has consider normal and many because used to using the supply system. Then it broke down and costs not expected to increase did increase which was out of control of the company. It has taken a while to adjust because it was impossible just to raise prices. When a normal everyday cost increases for a company it is important to see how it adjusts? how flexible is the company? how secure are the profits?

There are more questions than answers, till the next time – to raising questions.

Dividends and Insurance premiums jump for some businesses exposed to war in Ukraine

In the world of risk management, there is usually an insurance to be bought to ensure if the worse happens, some money comes back to the company. It would not be surprising that premiums to war torn countries go up.

In an article from Reuters, insurance premiums are doubling or more for some aviation and marine businesses exposed to Ukraine.

Global commercial insurance premium rose 11% on average, according to insurance broker Marsh.

War is typically excluded from mainstream insurance policies. Customers have to buy extra war coverage on top of the normal insurance.

Garrett Hanrahan, global head of aviation at Marsh, said aviation war insurance was no longer available for Ukraine, Russia and Belarus.

S&P Global estimates insurance losses of $16 billion to $35 billion in so called specialty insurance classes such as aviation, marine, trade credit, political risk and cyber. Aviation insurance claims could reach $15 billion with hundreds of leased planes stranded in Russia.

In ship insurance, policyholders pay an additional breach premium when a ship enters particularly dangerous waters, locations are updated by the Lloyd’s market.

Linking to dividend paying stocks, when you buy a profitable company you expect a high quality of risk management department – who they will and will not deal with and what terms. Ideally the risk of not paying is low. For many global companies, war is a normal risk, because there are many wars which mean insurance companies have policies on how the situation moves forward. One of your homework is how does the risk management department work in your investments? and do they pass on costs to customers?

There are more questions than answers, till the next time – to raising questions.

Dividends and Texas law has banks claiming they do not discriminate against guns

In every capitalist society, the economy runs on credit. If businesses and individuals have access to credit they will spend on something, if banks limit their credit they will spend less. It is relatively easy method to see how the economy is doing, do business and people have access to credit?

Sometimes, banks have slightly more complicated relations to who gets credit and why?

In an article by Stephen Gandel of the New York Times News Service, after the Parkland Florida shooting of school children, one of the many pressure points on government and business was to reduce the credit or loans to gun manufacturers. In some states, this caused the gun manufacturers to move to more “friendly” states. One of the more friendly states is Texas and they have been passing laws to ensure gun manufacturers have access to credit. One of the laws is if the bank discriminates against gun manufacturers they can not do business with Texas government agencies.

According to Dealogic, JPMorgan since 2020 has raised $708 million for companies in the gun industry.

Texas is one of the largest states in the US and its municipal bond market is also one of the largest in the US. Wall Street investment banks have long made lucrative and relatively risk free fees underwriting municipal bonds. Texas’s municipalities borrow about $50 billion a year which translates into $315 million in fees, according to data from Bloomberg.

In Texas the investment banks have to send a letter to the State Attorney General to say they comply with the law. Then the investment bank can bid on state agencies – from utilities to municipal bonds. From 2015 to 2020 JPMorgan Chase underwrote 138 Texas bond deals raising $19 billion for the state generating $80 million in fees. In June, JPMorgan submitted a bid to underwrite a $3.4 billion for the utilities, the largest in state history.

Linking to dividend paying stocks, we often think there is government and there is business and sometimes the interests overlap and sometimes they are not aligned, but most of the time the interests are favorable to each other. Once in while a state will draw a line in the sand and it is up to the company to determine how much is the business worth in the state? What stance should a company draw a line in the stand? should shareholders approve it? What appears to be simple issues may be complicated because someone believes it is a line where they can be elected on and is that good?

There are more questions than answers, till the next time – to raising questions.

Dividends and Oil’s bull run snaps inverse US dollar link

In the past there has been a link between the US dollar and oil prices, when one goes up the other goes down, for good reason. Although the US produces oil, it also imports oil and to buy oil needs US dollars. There there is a natural relationship between the two.

In an article by Ahmad Ghaddar and Saikat Chatterjee of Reuters, since March something different has been happening. The US dollar and oil prices are moving in the same direction since late March and experts believe the link to persist given tight oil market and broader risks in the economy.

This time around higher oil prices are threatening the world’s economic outlook and the US is seen as a safe haven reserve currency of choice among investors.

According to Callum Macpherson, Investec head of commodities, generally oil tracks closely to the S&P 500 but that correlation has disappeared completely.

Ehsan Khoman, head of emerging markets research at MUFG said, historically energy crises and inflationary shocks were centered on the US, but this time they are centered on Europe and that has met the US dollar is appreciating.

Linking to dividend paying stocks, when investing there tends to be rules or normal patterns, when those normal patterns are out of whack it takes the market time to adjust to the new normal. Then new rules come along. The higher US dollar will mean global companies will have more foreign exchange risks, but they will continue to make money. The rule that profitable companies are a good investment never fall, just ensure you know why they are profitable.

There are more questions than answers, till the next time – to raising questions.

Dividends and Exxon shareholders back Board

All public companies have Annual General Meetings or AGM and shareholders get to vote for the Board of Directors, the audit company, executive compensation and other issues which may come up. If a company has made money and the profits are within the expected range, the odds are overwhelming what management has recommended will pass. If the company is losing money or shares are down, then shareholders will and do vote against management recommendations.

In an article from Reuters, what a difference a year makes. Last year Exxon Mobil Corp headquartered in Houston, Texas was facing a low price of oil and gas which sent the share price down to the lowest point in years. Then Russia invaded Ukraine and oil prices went up. Last year, the concerns over the environment lead to 3 people being elected to the Board of Directors which were not recommended by management. This year the the overwhelming majority backed management as the share prices climb from the 30’s to the 90’s and the company cash is gushing into the company. At the AGM, an organization wanted increase action on climate change but only 28% voted for it.

Linking to dividend paying stocks, when a company makes profits and can pay shareholder dividends or do stock buybacks, the majority of shareholders will make management because they made profits. In some industries, as long as management does not make huge blunders they can make profits, in other industries they have to continually executed well. The issue is shareholders can do what they want with the dividends, the company’s job is to ensure they can be paid.

There are more questions than answers, till the next time – to raising questions.