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 Alphabet responds to Micorsoft’s AI challenge at annual conference

All industries have conferences and some are worth paying attention to and others are more for the people in the industry. How are they doing? what opportunities are within each firm? the new products companies offer for the season. At some conferences which over the years have gained an expectation that something new for the industry is going to happen, you can think of the Consumer Electronics Show in January in Las Vegas or the Detroit Auto Show. In the computer world, AI is the hot topic because ChatGPT opened up the software for more people to try and potentially use in their personal and business lives. Microsoft had announced its search engine Bing is now powered by AI, but what about Alphabet which makes billions of dollars on advertising revenues from its search engine?

In an article by Jeffery Dastin and Greg Bensinger of Reuters, the elephant in the room, Alphabet recently had a conference to show the world how it was using AI it is products and will continue to enhance all its products with AI. The conference Alphabet had is called the annual I/O Conference in Mountain View, California.

Sundar Pichai, Alphabet’s CEO said they are reimaging all of our core products including search using generative AI into seach, Gmail and Google Photos.

US consumers will gain access to the Search Generative Experience according to Cathy Edwards. The trial process is involved which Google will monitor quality, speed and cost of search results.

The online-advertising pie is estimated to be $286 billion according to MAGNA Research. Google has about 90% of the pie. A percentage point of share to be gained is worth $2 billion in revenue.

Linking to dividend paying stocks, it is difficult to be a leader in any industry and some industries seem to change faster than others. If you are an investor in a leader of the industry, you need to see how they respond to challenges particularly when the gains of market share is worth billions. If you agree with the company, you can hold as Wall Street agrees with your position and the value of the shares increase. If you do not agree then in every industry there are alternatives, some at the right price to make a change.

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

Dividends and Financial turmoil paves the way for even bigger ‘shadow banks’

In every industry there are the normal channels of doing business and those that operate behind the scenes. In every industry, to know other methods often it means people have to be in the business. For example, if you operate a small business you may have to dip into your personal accounts depending on the cycle of the business. When you gain size, you want a bank to finance your business, and sometimes you will need extra financing for a large contract. Maybe you will sell your receivables to a factoring company for the cash upfront and the factoring company collects the payment owing. Depending on the economy and how many loans your primary bank has, you might need to look to a second bank or financial institution. The larger your company, you will deal with multiple lenders or investors for some will offer secure funding but higher interest rates, but your company needs the secure funding. If your company is very large, it can often dictate terms to the bank.

In an article by Laureen Hirsch of the New York Times News Service, it often happens when there is crisis in the banking sector, the first reaction of the regulators is to tighten regulations of the bank. There are very good reasons to doing this for protection of the depositors is in the forefront of the regulators. However, when the regulators do their thing for the good of the sector, the consequences are the banks tend to lend less or become tighten lending to businesses.

Businesses will look elsewhere for loans. There is a growing number of non-banks that can give loans but do not take deposits and the names include Apollo Global Management and Blackstone.

According to data from Preqin, the private credit industry has grown sixfold since 2013 to $850 billion.

The returns on private credit since 2000 exceed loans in the public market by 300 basis points according to Hamilton Lane, an investment firm. Those big returns credit an appealing business that once focused on private equity.

Private equity is increasingly extending credit to firms that traditional banks will not touch such as small and mid-size enterprises. These companies are not necessarily companies with good credit ratings.

The issue for some regulators is as private equity takes lending from the banks, what happens if private equity firms which are not regulated get into trouble? who rescues them and why?

Linking to dividend paying stocks, at the stage profitable companies that can pay dividends, they should have very good relationships with the banks they deal with. Sometimes you will see a bank executive on the board or board member on a bank board. (Years ago, a company had arrived in the big time if the President of the company was invited to sit on a bank board. ) Profitable companies tend to do their banking with the large banks in the system and investors have little worry the banking relationship would change. Sometimes investing in profitable companies gives one less aspect to be concerned about in the broader economy.

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

Dividends and Buffett is upbeat at Berkshire Hathaway AGM

One of the most well known investors is Warren Buffett who has run the company Berkshire Hathaway since 1965 and is one of the wealthiest person on earth. Every year in Omaha, Nebraska the company holds an AGM and unlike most AGMs. the Warren and Charlie Munger take questions for 5 hours. In many AGMs, the question and answer session is 20 minutes or less.

In an article by Jonathan Stempel, Carolina Mandl, and John McCrank of Reuters, Mr. Buffett discused a wide variety of items including the company’s stock holdings.

Berkshire owns $328 billion of stocks about 50% is a 5.6% holding in Apple worth $151 billion. Mr. Buffett said Apple is different than any other business we own, it just happens to be a better business. He also believes consumers are less likely to shed their $1,500 iPhone than a $35,000 second car.

The second biggest business is Occidental Petroleum which they own about 25% but has no plans to take control of the company.

Other holdings include Geico car insurance, BNSF railroad, Coca-Cola, Dairy Queen and Fruit of the Loom.

Recently Mr, Buffett went to Japan and has been adding large Japanese stocks to his portfolio.

Attendance at the AGM brings in capacity crowds at the Omaha Convention Center and Arena.

The company is sitting with $130 billion in cash equivalents.

Linking to dividend paying stocks, Mr. Buffett’s Berkshire Hathaway is a testament to buy profitable companies that pay dividends and hold them for a long time. As the companies grow each year, although all companies have cycles of up and down, you can buy more when they are down, the fact that they are profitable means the share price tends to go over the long run. Sometimes there will be stock splits which means over the years you own even more which is a good thing. Mr. Buffett maintains a large cash position to take advantage of corporations asking for money to help them, which he loans or offers at high rates of interest taking convertible preferred shares. However if the market is down and you have cash to invest, there will be opportunities to buy a low prices. It is good to learn from master investors.

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

Dividends and European airlines report strong bookings for summer, hope to avert chaos

Hospitality and tourism are major drivers of the world’s economy and we saw a shutdown during COVID and then an reopening afterwards. It was not surprising during the reopening there was chaos because many employees did not return to the jobs in hospitality and tourism. Many of the jobs tend to be structured towards the low end of the pay scale and there were other choices, which meant fewer people doing all the jobs necessary to ensure hospitality and tourism works. This year it is better and as the weather changes to more summer weather, there is a desire to return to what was normal routines.

In an article by Sarah Young and Federica Mileo of Reuters, the larger airlines in Europe – British Airways and Air France-KLM reported bumper bookings despite a cost of living increases.

IAG or International Airlines Group owner of British Airways, Iberia, Vueling and Aer Lingus airlines cautioned the problems on the horizon are possible strikes and lack of staff. The strikes are duel to the higher cost of living, however summer bookings are very good. In addition, the other major airlines in Europe – Luthansa, easyJet and Ryanair have reported strong summer bookings.

IAG expects its profits to come in the top end of the $2.6 billion to $3.4 billion forecasted. The top end is a 90% improvement from last year.

Holiday Inn owner IHG plc reported a 33% jump in 1st quarter revenue per available room.

In China, COVID restrictions have been lifted and travel is benefiting in the Asia-Pacific region.

Linking to dividend paying stocks, as the economy returns to what was normal, part of the normal flow of people is during the good days of spring – summer and fall, people move about or use hospitality and travel. All the companies have multiple price points, but they use the same metric – passenger in the seat and guest in the bed or occupancy rates. If you are traveling and the aspect is normal practice, observing can help you determine how the companies are doing financially.

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

Dividends and Investor Icahn becomes target of short-seller

While the stock market is for everyone, there are always a few people who seem to do better than the average person. They become known through the financial press because while the trading of companies is what happens, behind the trading are people. For example, many people have heard about Warren Buffett. in a previous era was Milken Milken, and another person who has been a Wall Street legend for nearly 50 years is Carl Icahn. Mr. Icahn has been a corporate raider and activist shareholder making Boards of Directors bow down to his demands and change corporate business strategies.

In an article by Michaeal J De La Merced of the New York Times News Service, a company that specializes in short selling which is to buy shares in a company expecting them to fall is focusing on Mr. Icahn’s company Icahn Enterprises. The short seller company is called Hindenburg Research and they believe Icahn Enterprises trades above its net asset value because its dividend is being financed by selling stock.

In that fashion, Icahn has been using money taken in from new investors to pay out dividends to old investors or a Ponzi-like economic structure. Icahn Enterprises responded by saying Hildenburg report was a self serving short-seller report to generate profits on Hindenburg’s short position at the expense of the Icahn Enterprises long term unit holders.

(it is noted, if a company believes another company’s shares should fall, then it has to send out press releases to say that and if they are correct the price of the shares will fall.)

Linking to dividend paying stocks, there is a saying you reap what your reward, for a long time Mr. Icahn has been an outsider to Wall Street because he was a corporate raider and buys into companies to change them. It is not surprising that someone is trying the same tactics on Mr. Icahn for there likely is some merit in the report. How much merit, time will tell. Mr. Icahn has done very well over the years and is in the billionaire category of investors, sometimes you make friends, if you wish to change company strategies you will make enemies along the way. The wonderful thing about investing in profitable companies which can pay dividends is there are no enemies to make. The company does its service to the public. makes a profit and pays a dividend to you. You can be informed of the raiders, but you do not have to trade that way if you do not want to for long term investing, buying profitable companies that pay a dividend works.

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

Dividends and I once sold a company to Blackberry, I saw its decline coming

We all know companies have cycles the best time to buy is when the price is low and as the price goes up, you can sell some of your holdings and the rest are essentially free. How long you hold them afterwards is dependent on how the company is doing. Ideally the company is growing, and when companies are growing, they will have and do have many different issues around the growth. The company will have to internally restructure, bring in new people and sometimes they work out sometimes they do not. Somewhere in the growth are signs of a decline which if you see and they are not corrected, it is time to find alternatives.

Before everyone had either an iPhone or Google android such as Samsung, there was the Blackberry, the most famous user was President Obama. The phone was often called crackberry because everyone who had one was on the phone all the time, now days it is normal.

In an article by Marc Gingras who wrote an opinion piece for the Globe and Mail, he sold a calendar service to Blackberry and was asked to lead the product management team. Mr. Gingras wrote the article for readers to learn, sometimes hubris and the inability to change mindsets can sometimes be the kiss of death, even for once great companies.

When Mr. Gingras joined Blackberry, the product management team reported to one SVP and the R&D team reported to another SVP. This created an adversarial environment because the product team wanted to more features to its customers, while the R&D team want to make sure they could deliver on their produces to reduce the scope of what features were needed, which lead to many compromises.

Mr. Gringras wanted a change that both departments would report to him. The SVP of Product was good with it, the SVP of R&D had reservations. He asked why do you want to change the way we have been doing things? Mr. Gingras said because from my perspective we are failing. The other person said, failing? we have managed to ship our releases on time, they are good quality, we have things under control. I said, but Apple (the competition) is kicking our butt. We are failing users, we are failing in the marketplace.

The perspective was the SVP of R&D saw the measure of success was whether our products were being delivered on time. For me, it was whether we were delivering a product that delighted our customers.

Eventually, Blackberry changed their phone to look like an Apple iphone, but why choose Blackberry if it looked like an iphone. Customers began to leave Blackberry and although it still exists, it does not have the market share it did. Could it have remained a dominant market player? no one really knows.

Linking to dividend paying stocks, there are many companies that come from the “garage” and become a dominant company and then slowly go lose market share. There are a wide variety of reasons for the downturn, but often it can be seen in retrospect how they did not adapt to the changing marketplace. There will be parts of the company that worked wonderfully when it was smaller, then okay as the size grew and behind the scenes was not really working behind the scenes. People in the company will see different aspects of the company. For example, in the cellphone business, who sells smartphones – it is the big communication companies, a buyer goes to Verizon or someone similar. Do the carriers worry what brand they sell, as long as they make a profit from it? maybe the carriers changed their policy but the company still thought it was number one. There are many reasons that are possible but often delivering a product that delights your customers is rarely a reason why a company would fail. Does it?

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

Dividends and Can the coronation boost Britain’s economy?

Every economy in the world depends on many aspects but tourism or hospitality industry ranks as a large contributor to the GNP. Within the tourism sector are the local and the international aspects. International is people travelling across borders to visit a country, local are the people who live in the country. Sometimes the local tourism is based on the weather, if you were to visit New York City in the summer, you would notice it is hot and humid. There is a reason why people leave the city to feel better – past the suburbs are parks, cottages and cooler temperatures. There is another topic of how much money people spend – from camping to five-star resorts, there usually many price points for tourism.

In an article by Eshe Nelson of the New York Times News Service, an event was held in London, England during the first week of May. The event was the coronation of King Charles. With the royal party, there is many traditions and pomp and ceremony for the event and the public was invited to watch on the screens.

The issue of what happens to the Coronation can be related to the Championship event for sports. People gather at the stadium as well as bars and restaurants to watch and cheer to the teams. The bars and sponsoring beer companies will have put up signs and encourage everyone to participate and spend money at their establishment.

In England, the coronation of the King started a 3 day celebrations and even if someone does not like the monarchy, they were likely watching because the coronation of a new King and Queen does not happen every generation. In this case, the King is in the position until they die or just before they die. Charles is about 70 years of age and if he lives to 90ish, there will not be another coronation for 25 years.

Stephen Millard, a deputy director at the National Institute of Economic and Social Research, believes there will be a upswing in consumer confidence but unlikely to fundamentally change the British economy. The UK Hospitality, estimates an additional $600 million in spending on hotels and at pubs.

Linking to dividend paying stocks, in the hospitality industry, there needs to be events on a regular schedule to ensure occupancy and spending on food and beverages. For a dividend producing company, it should not rely on big events, it should rely on normal day to day spending. If the company has to rely on events, then as investor you need to pay attention to how it makes it money and does it? If you invest in a local or national utility, then you need to know does the lights work when I turn the switch on. There are a number of methods to invest your money, but always try to find relatively boring ways which is very consistent and high margins.

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

Dividends and Apple beats Wall Street revenue and profit estimates

One of the most owned and watched companies on the stock exchange is Apple. The smartphones from Apple have changed the world, maybe for the better and people love the product. During the pandemic with many people staying at home, consumer products including Apple’s sales skyrocketed. That is good, but when sales take off, they will be expected to fall at some point.

In an article from Reuters, Apple’s sales have remained constant as Apple sales were $94.84 billion which is better than the street estimates of $93 billion. Profit was $1.52 a share compared to the estimates of $1.43 a share.

Chief Financial Officer Luca Maestri said Apple’s gross margins was between 44 and 44.5% versus the estimates of 43.7%

The Board approved of buybacks of $90 billion.

iPhones set a sales record thanks in part to the new users in markets such as India where Apple owned new Apple stores.

Linking to dividend paying stocks, one of the roles of investment banks is to provide estimates at what they think will be a company’s performance. It is up to the company to try to beat the estimates, but it is noted most of the time the estimates are generally accurate. The estimates for the companies that pay dividends should be within a couple percentage points for the analysts tend to know the industries very well. It is a rare dividend paying company that the analysts get wrong. If the analysts’ estimates are off for your investment, it is time to find alternatives.

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

Dividends and US blocks Microsoft’s $69 billion bid for Activision

In the world of business, we often believe that because a large corporation makes an offer to buy another company it will eventually go through. Some shareholders may ask for a higher price, but generally the offer will go through. We often believe this because in every large corporation there are teams of people who examine potential mergers and acquisitions on a regular basis. The teams report to the President and when an offer is made, outside legal and banking talent are working to ensure the potential merger passes the legal concerns and funds are available to pay for the acquisition. The group also stays abreast who the largest shareholders are for their company and the one they will potentially buy. In seems Microsoft’s groups missed one element in the planning process – ensure governments are on your side. When a merger is announced, the public and interested groups – both pro and con, will try to attached themselves to the best outcome.

In an article by David McCabe and Kellon Browning of the New York Times News Service, the British antitrust regulators dealt a major setback to Microsoft and giving a win to the government enforcers around the world who want to rein in Big Tech.

Most people know the cloud in relationship to corporate users and the growth of cloud services with Amazon, Microsoft and Google. Another cloud service is the gaming industry and with the gaming industry the spend is similar to what people spend on Hollywood movies. The technology allows people to stream games to their devices without the need for special devices to play the game, such as gaming consoles.

In the British decision, there were hints at reigning in Big Tech or the era of easy blockbuster deals by tech giants is over.

Microsoft was hoping to combine Microsoft’s Xbox console and video game subscription with Activision’s games such as Call of Duty, World of Warcraft, and Candy Crush. Microsoft has more than 25 million subscribers for its gaming services.

Cloud gaming is relatively new, but the projections are to be worth $1.3 billion in the UK and $14 billion globally by 2026. Cloud gaming does encounter frequent glitches and requires a strong WiFi connection. However, every year the big communication companies such as Verizon make WiFi easier to connect to.

Linking to dividend paying stocks, all companies do mergers and acquisitions, the larger the number, one would expect the more work has gone into ensuring the shareholders of the proposed company and the government regulators are on side before announcing. In our information society, there will be more pros and cons heard by the government regulators because it is relatively easy to make submissions and the pros and cons reflect sentiment in the news. In this case, are Big Tech companies too big? do they have too much power? There are plus and minuses to the questions, but it is up to the company to deal with regulators and allow competition to occur. In many semi-monopoly industries, the regulators are often on the side of the industry which helps the companies maintain profits to pay dividends. One example is the electrical utility regulators which often raise rates every year. Companies often have short term outlook to ensure their quarterly results are steady and growing, government regulators can look years out, but politicians have a very short time period which means corporately it is balancing act. How does your management manage the balancing act?

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