One of the reasons why you invest in dividend producing stocks is they have a cash flow which allows them to invest in the company and give money back to the shareholders. There is always a balance, but in a crisis what a company does with its cash flow can tell you if you want to be a long time shareholder. When the pandemic started all companies were unsure or had low levels of certainty of what to do, then time went on and they adjusted. Office workers worked from home, meetings on Zoom or Webex or one of the platforms and there was a level of adjustment.
Adjustment is always two phases, the first phase just the understanding of what needs to be done and the second stage how long will it go on. Was the pandemic a summer thing and all back to normal in September or will it go longer? In an article by Andrew Willis of the Globe some companies bought back their stock and expected things to be relatively normal. There were a number of companies who batten down the hatches, tap government programs for support and hope the vaccine would come soon.
Others like CN, saw the pandemic last longer and there were things it could do and did. CN is one of the largest railroaders with lines running from Chicago to New Orleans and from coast to coast in Canada. The company has 25,000 employees moving about 110,000 rail cars each week across 60,000 miles of track. All companies have investor conferences to tell their story and CN has been telling a good one.
At the start of the pandemic, the company shut down as the economy shut down, but then it realized and did figured out which customers ran essential services that would be needed – food distributors and farmers. Rail cars were moved to 23 terminals which featured refrigerated facilities. This helped keep grocery stores shelves remaining stocked. The company invested in new ship-to-shore transport system. The company did other investments to ensure the company could meet the demands of its customers.
Linking to dividend paying stocks, every company faces similar problems, the difference is some companies have more money to throw at the problem or do nothing. How does a company’s culture and work force adapt to the new realities? When you examine your investments in companies, how well did they adapt both short term and longer term? Did they pretend the COVID is over? what did they do and not do? If you believe they did the right thing, great if you believe they could have done something else then it is time to look for alternatives.
There are more questions than answers, till the next time – to raising questions.