Dividends and China factory activity cools in April, struggles to rebound

Every country in the world likes some sort of growth in the sector which provides the greatest economic activity for the country. For a number of countries around the world, tourism is a large generator of economic activity. If you ask people you know where are they going for holidays? you might be able to gauge how the global tourist economy is doing. During the past 30 years, China became the manufacturing center for the developed world.

In an article by Ellen Zhang and Ryan Woo of Reuters, the official manufacturing Purchasing Managers’ Index (PMI) declined to 49.2 from 51.9 in March, according to data from the National Bureau of Statistics (NBS). The 50 point on the index marks either expansion or contraction on a monthly basis.

The manufacturing sector in China employs about 18% of the workforce and China is the world’s second largest economy.

To boost trade and employment, the Chinese cabinet unveiled plans including supporting auto exports, facilitating visas for overseas businesspeople and providing subsidies to firms that hire college graduates.

Linking to dividend paying stocks, governments of all stripes try to encourage economic activity. If you own a profitable company they often benefit from the government’s push to help the economy, whether directly or indirectly for most subsidies are wide reaching. If the companies that you invest in does not receive government help, you should look for alternative investments for they are giving up free funds for doing what they normal would do.

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

Dividends and Subway comes up with debt plan to clinch $10 billion sale

Every once in a while a food chain rises and soon people have tried it. Many continue and the chain expands and the family that started the chain wishes to sell out. Franchise operators such as McDonald’s is a public company, but many companies remain family owned and controlled. A franchise which many people have tried is called Subway, founded in 1965 by Fred Deluca and Peter Buck. Fortunately the families have adapted and remained in control since, but the families made the decision to sell.

Who are the buyers – private equity firms.

The appeal to the private equity firms are the royalties paid by each franchise. The term of this method is called Whole Business Securitization or WBS. The royalties expected can be used as collateral for bank loans. The private equity firms have access to credit and can borrow money, the future royalties paid down the debt and the private equity owns more of the firm. Eventually it can sell the asset or merge it with its other holdings in the food business.

When interest rates rose, the cost went up and the normal financing became a challenging environment. Subway retained JPMorgan Chase for assistance, and they came up with the solution of a $5 billion acquisition financing plan. The owners of Subway want a final price in the $10 billion range and with the loan, the private equity companies could come closer to the target price. Bids from the private equity firms came in between $8.5 billion and $10 billion.

The temporary financing would be replaced by the WBS method, however, to do the WBS method, a store-by-store due diligence by the rating agencies needs to be done and that can take up to a year. The idea being the private equity used JPMorgan and then refinance after 9 months with the WBS.

The remaining bidders are Bain Capital, TPG, Advent International, TDR Capital and Roark Capital. In the final round of bidding, the companies can team up if desired or go alone.

Linking to dividend paying stocks, when companies have streams of income there are possibilities that can happen. Although the stream of income can fluctuate, there are abilities to securitize the income streams to use debt financing. In similar fashion, if you are employed the bank can give you a loan based on you continuing to receive the income from the company. The important aspect is to have a stream of income, one method is to have regular dividends coming in which allows you to either reinvest or use the income for other purposes such as pay off debt. The best solution is always looking back, but having the option is a very good thing for your lifestyle balance.

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

Dividends and Amazon revenue exceeds estimates

On Wall Street, the analysts really like it when a company exceeds the estimates, because it is doing better than the analysts have forecasted. The other aspect about Wall Street is although it loves growth and growing companies, it loves discipline to make cost cuts when the growth slows. During the pandemic, e-commerce for the consumer and business was the big thing and it seemed Amazon was expanding to every state and every country around the world. When the pandemic was announced it was over and people could go back shopping, Wall Street demanded Amazon cut because growth levels were down or leveling off. In a tech company, Wall Street wants to see layoffs.

In an article published by Reuters, Amazon reported quarterly sales and profit ahead of expectations and the stock price rose.

Chief executive Andy Jassy has aimed to slash spending across Amazon’s vast array of business. Both the cloud and advertising business remain profitable. Amazon had 300,000 corporate staff and 1.47 million people in total and has reduced the work force by 9%.

Sales of the company was $127 billion and they are expecting the same ballpark in the next quarter.

Linking to dividend paying stocks, trends on Wall Street come and go, sometimes it is growth at all levels, sometimes it cutting costs, sometimes it is what divisions are profitable, sometimes it debt levels, sometimes it is raising equity. trends come and go. What is never a trend is investing in profitable companies which can pay a dividend helps you manage the trends to a greater degree. If a company can maintain its margins, as an investor you will notice the trends but to not have to participate in them. Sometimes you will ask management how are they taking advantage of the trends?

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

Dividends and US details strategy to revitalize its chip industry

Almost every who listens to politicians dislike the politicians spending money on what they do not like, however if the same politicians were to spend money on something they do like, the attitude quickly changes. Sometimes the reasons to spend are very sound, for the good of the long term and a whole host of very reasonable rationalized answers, but it is still government money.

In an article by Ana Swanson and Don Clark of the New York Times News Service, the Biden Administration outlined plans to spend money building computer chips in the US at a cost of $70 billion. The money included money for computer chip companies to build new factories and to do research on the next generation of chips.

The US Commerce Deptartment is in charge of the administration’s efforts said its new National Semiconductor Technology Center would bring together companies, universities, and others to collaborate on next generation chip technology. The organization would include a string of research centers, the locations of which have yet to be chosen and aims to be operational by the end of the year.

To put into perspective the $11 billion investment by the US government is coupled with the semi-conductor industry has in the past years spent about $70 billion on research and development, according to Laurie Glandomenico, the VP and Chief Acceleration Officer of MITRE, an nonprofit that operates federally funded research centers.

Companies, universities, lawmakers and local governments have been lobbying the administration to sept an outpost of the new organization in their area. Senator Chuck Schumer is pushing Albany, NY as a site. Part of a Senator’s job, no matter their political stripe, is to lobby for government research and development money). For a private sector lobbying remember the cities which proposed to Amazon for their second headquarters.

Linking to dividend paying stocks, personally people may not like the government but if the government programs help the company they are attached to, they like it just fine. If your investment is not benefiting from some form of government assistance, it is time to find alternatives.

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

Dividends and McDonald’s 1st quarter results top estimates

When you are evaluating a company, one of the items on the list is if the company raises prices, do they retain the same number or grow their customer base. Often times, you will hear people are price sensitive and organization from non profit to profit making companies have many discussions about prices. If the prices are too low, for people see value in paying higher prices, then the normal routine for the organization continues. If prices are too high, people will start or move to prices which are more reflective of their value statement. Many years ago, my residents association was charging $5 for membership, we changed to super member $40, family membership $20 and individual $10. Most of the renewals were at the super membership because the local residents saw value in what the residents association did or was trying to do. To make the change was a 3 month discussion.

In an article by Hilary Russ and Deborah Mary Sophia of Reuters, McDonald’s Corp beat Wall Street expectations for quarterly global comparable sales and profits. Greater numbers of customers visited McDonald’s in all markets and all income groups. Prices for hamburgers and fries were increased, but it translated to a rise in 12.6% sales. Estimates were 8.5% according to Refinitiv IBES data.

Customers are buying fewer items per order, but Chief Executive Chris Kempczinski was optimistic about the rest of the year.

UBS analyst Dennis Geiger noted McDonald’s ability to attract more middle income and upper income consumers highlights the company’s moves to improve the speed of service and food quality.

The average spending per McDonald’s trip was $7.77

On a quarterly basis, McDonald’s total revenue increased 4% to $5.9 billion. That number bested the estimates of a drop in sales to $5.587 billion. The company earned $2.63 a share versus the expected $2.33 and margins increased 14%.

Linking to dividend paying stocks, most companies talk about price and how price sensitive their customers are, for we all like paying less. However profit companies that can pay dividends are able to raise their prices to ensure the margins remain and make a profit. All companies have to do a balancing act to ensure the price matches the value of the profitable customers. If a company does not raise prices, then it is time to find alternatives.

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

Dividends and First Republic faces tought path to turnaround as deposit flight jolts investors

In 2022, things were going well for the executives at First Republic Bank, the bank had assets of over $200 billion or was the 18th largest bank in the US with 18 branches. In the GOBanking Rates Best Banking ratings it was considered a very good bank to deal with. Then a change happened, the San Franciso Bank SVB went bankrupt and people both institutions and individuals starting taking money from the regional banks to put in the largest banks of the country.

In an article by Manya Saini, David French and Saeed Azhar of Reuters, First Republic Bank reported it had $100 billion moved from its holdings to other banks or about half of its deposits. The bank was trading at over $142 a share in February, now it trades at $6 a share. What should the bank do?

First Republic said it was pursuing strategic options to help expedite progress on strengthening the bank. (the bank is studying all options open to it, said someone speaking on the condition of being anonymity).

Christopher Wolfe, head of North American banks at Fitch Ratings, told Reuters if someone were to acquire the bank, there is going to be big write downs that would have to be taken against some of the assets given the rate cycle. Mr. Wolfe was referring to the bank’s mortgage book and securities portfolio.

Analysts at Wells Fargo said the reported deposit outflows were much worse than Wall Street estimates and at a level that could prove very hard to come back from.

In March, the big banks put together a $30 billion rescue deal to ensure First Republic would continue to be a going concern and ease market concerns.

First Republic will be shrinking its balance sheet, slashing expenses, cutting office space and laying off a quarter of its employees. It will likely be merged with another bank in similar fashion as SVB was or was merged with a bigger bank – JPMorgan Chase.

Linking to dividend paying stocks, at the start of the year, there were many reports saying First Republic was a good stock to own at $140, then the banking world changed and its soft under belly was exposed and now the bank stock is $6. It is likely worth more than $6 but the fall came swiftly and seemingly out of the blue. After the fall of SVB, people asked are there any other banks which have mismatched assets and loans? First Republic was on the list and down it went. It would be normal if you were a shareholder to hold until the price went less than $100, then it was time to get out. People still liked the bank stock and bought it on the way down, but will it come back up? No one knows, but the likelihood is no, because of the fundamental reasons why it was considered on the list to be in trouble. Asking the worst case scenario is a good thing, for if you have considered the worst and something like it happens, you will have a better idea when to find alternatives.

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

Dividends and Google devises radical changes to stay on top

When you invest in a company, you expect and hope it will grow and the company will be profitable for years to come, but that is easier said that done. If the company is at the top, your investment has grown by multiple percentage, you are delighted you made a good decision and because you are ahead you tend to hold and not worry about the company. You can check the metrics the company has to ensure you they are doing well, the stock will go up and down, but you can hold on. Then a change happens or is noticed by the investment community and all of sudden, competitors that you think the company did not have, they are alive and looking like they will gain market share. How does the company react?

In an article by Nico Grant of the New York Times News Service, the complacency at Google has been changed to panic to we can come out ahead.

Google owns Android and that system is in many smart phones including Samsung. If you have a Samsung phone, the default system for checking the internet is Google. The contract is worth about $3 billion a year to Google. For Apple users, the contract is worth about $20 billion. According to the article, Google’s employees were shocked when they learned Samsung was considering going with Microsoft’s Bing as a default. The reason or the elephant in the room is Microsoft announced Bing was going to work with AI to make it better. After the shock reaction, Google felt panic and now they have announce Android will come with AI features.

The new features are under the project name Magi. The designers, engineers and executives are working to ensure the new search engine would offer users a far more personalized service, attempting to anticipate user’s needs.

Billions of people use Google’s search engine every day which translates into business worth $162 billion a year.

Google has been doing AI research for years. Its DeepMind Lab in London, UK is considered one of the best research center in the world. Jim Lecinski, a former Google of VP sales and service said, the company has been goaded into action and now has to convince users that it was as powerful, competent and contemporary as its competitors.

Linking to dividend paying stocks, staying at the top and being a profitable company is a difficult job because the competitors are after year. There is always a new trend in every industry and people have to believe the company can and does adapt to what is contemporary every year. Why does X company have this feature and your company does not? If the company updates its features but its customers do not like it, will they switch? It is wonderful to have a moat to protect or keep out the competition, but all moats are eventually passable. As an investor you want dull and boring on the financials, but excitement in the product offering. Dull and boring is the company had good margins to make a profit to pay dividends to reward shareholders. If the financials are not dull and boring, find alternatives sooner than later.

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

Dividends and Bed Bath & Beyond files for bankruptcy

When a company goes national, one of its attributes is the goodwill it brings to the chain. People see it and eventually some will be semi-regular buyers. If you travel from your hometown, eventually you will see the chain and you will think it is doing well. During the past few years, companies that were in standalone or big box store were in trouble because the government was encouraging people not to go shopping. There was hope when things returned to semi normal or even normal, retail would bounce back, and all would be good again.

In an article by Anne D’Innocenzio of the Associated Press, Bed Bath & Beyond had 360 stores and 120 buybuy Baby stores, has filed for bankruptcy in a New Jersey court. The company is based in Union, New Jersey, listed assets and liabilities in the range of $1 billion to $10 billion.

The company said it had secured $240 million in financing from Sixth Street Specialty Lending to allow it to keep operating during the bankruptcy process.

The store was founded in 1971, but since 2013 has struggled with weak sales. The biggest competitors were Target, Walmart and Wayfair. During the supply crisis of 2021-22, Bed Bath and Beyond was missing many of its 200 best selling items including kitchen appliances and personal electronics. For stores that depend on the holiday season, it was disaster for financial results. If a store misses the holiday season, it has to wait 9 months to sell again.

A year ago, people had home in the company and the shares were trading at $17, recently they had traded at 30 cents.

Linking to dividend paying stocks, everyone has a bias towards looking at things they do and can see other people doing. In the case of Bed Bath & Beyond yes it had its troubles but it owned the real estate and was worth something. All industries have competitors and it is important to know which are the ones for the investments you have. In general, how is the company doing against its competitors? In retail you can sometimes see for yourself as a shopper, often times sales per square foot are reported or other metrics which define the success of retail. If you are a regular shopper, you can look around and see how often does the inventory move, is it the same as last year or more. If the metrics do not look good, then there are other questions and the important one do you have an alternative investment when you sell?

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