In our economy there are many trends going on, for many of them we will not know how to profit by them because we are not positive how to make money from it. However in the economy somebody will try and if they succeed, the companies will be on written about. One of the methods we can try to figure out what companies to invest in or to try to avoid is read books such as Microtrends Squared – the new small forces driving today’s big disruptions written by Mark Penn with Meredith Fineman, published by Simon & Schuster, NY, 2018. The book is divided into 6 sections – Love and Relationships; Health and Diet, Technology, Lifestyle, Politics and Work and Business. The great thing about the topics is we can able identify with some part. The more difficult question is what do you do about it? The problem is for every move or desire to move in one direction seems to inspire a countermovement by another group in the opposite direction.

In the information age – there is also a disinformation age. By offering as many choices under the sun, people are making fewer choices. Would one expect that advances in our ability to customize goods and services would open the world to never ending experimentation, but the people are finding what they like and sticking to their choices over and over again.

If you have a smartphone, for marketers, it is the ultimate spy. In the years ahead data will be the precious asset on the planet. Data allows the on-demand service to give you the right thing at the right time and the data makes the system work. The better its resolution, the better the targeting and the fatter the profits for someone in the digital chain.

An example is a leading elevator company has linked all its elevators they have installed or serviced in the world. They get data about every trip every elevator makes and this makes sense in terms of elevator maintenance. The data is becoming increasing valuable for other things such as AI and facial recognition and encoded fobs tell them where people are going and can calculate the loads on the elevators. If an elevator company can do this for its services, what can other companies do? The trend is what you think a company is personalizing for you is actually profit-maximizing for the company. If they work hand in hand, no one minds, but… The concern is a growing market concentration in the tech industry. One company is selling 50% of on line goods. On company has 98%of the search engine worldwide. In theory the power of the top 5 tech companies is mushrooming. Invest now.

We now the baby boom generation after WW II is 60 years older or more – there is a lot of people with wide interests and in general the older you are the more conservative you become. Some are empowered with technology, some are not and that changes voting.

Linking to dividend paying stocks, in each category of the microtrends square are things that are happening and some companies will cater to the changes. Which area you spend the greatest amount of time in, you should look at what companies can benefit and which are benefiting from the changes. Also do your existing investments in companies are they adjusting or not and do you like it. If they are seeing and doing something maybe they are keepers, if the industry is ripe for disruption, then find alternatives.

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

 

 

John Heinzl of the Globe and Mail writes about dividend stocks for the paper and at the end of June, he focused on a company called Corus. The company owns radio stations and TV programming. The company yield was 18% and has been reduced to 4% or from $1.24 to 24 cents as expected the stock declined. What lessons can be learned? Mr. Heinzl has a few:

Use Your Common Sense

If it seems to good to be true, it probably is. If the yield of a Treasury bill is closer to 0 and the yield on the stock is double digits, the yield on the stock will not last long. Part of using your common sense is being skeptical.

Read Between the Lines

If a company is preparing to cut its dividend, it often gives clues. For example we are committed to this fiscal year’s dividend. They do not say anything about next year.

Study the Dividend History

Companies can not afford to cut their dividends out of the blue. They typically stop raising the dividend after years of increases. The payout is the same, why?

Watch the Financials

For dividends to be sustainable, the company must make a profit and have the cash flow to pay dividends. If cash flow goes down, the sale of assets can make up for one year, but look further down the road at revenues, earnings and cash flow.

Pay Attention to the Payout Ratio

How much does the company payout in dividends compared to their piers. The piers are the ones they compare themselves to when deciding on executive pay. If they are above the companies they compare themselves ask why?

Stay in the Loop

For companies which you have significant resources invested in, you can listen to or read conference call transcripts and investor presentations to allow you to sleep better in the evening.

Linking to dividend paying stocks, if you invest in them the main reason is the dividend which increases your total return. Over the long term, companies which pay a dividend stocks will rise and you will be wealthier. Your task is to set up reasonably simple indicators to see if you wish to continue to hold or look for alternatives. We have all followed companies or industries which we think are wonderful only to find the individual company is not that great. Use the simple indicators to ensure your dividend is safe and then you can determine if the stock is still a keeper.

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

 

 

 

 

 

According to Ankur Banerjee of Reuters, at the end of June Amazon is purchasing a small online company called PillPack. The cost of the transaction is estimated by Bloomberg to be about $1 billion. In the world of drug supply companies, a billion dollars is not a large number but PillPack supplies drugs and other services to people who take multiple medications. This is a growing market as treatment for numerous, complex, chronic conditions and PillPack expects to have a $100 million in revenue this year. The effect of Amazon getting into the drug supply business sent down prices of Pharmacy chains and drug wholesalers. It is likely they will bounce back up.

Amazon teamed up with Berkshire Hathaway and JP Morgan Chase to form a joint venture to significantly cut health care costs. The joint venture has named a Chief Executive. PillPack and other companies are expected to be part of this strategy.

Linking to dividend paying stocks, although PillPack is a small company, the question is the drug business rip for disruption of the type Amazon has been known for? It maybe however the cost of medicine has been and will continue to be an issue. The large companies do run on line pharmacies which offer incentives to fill and refill their drug needs at their pharmacies.  In the health care business everyone agrees health care costs are rising and it is the fault of the other person so not much changes.

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

Constellation Brands is an alcohol company and if you have been into a bar you may have had one of their brands. Their brands include: Corona, Modelo, Robert Mondavi and SVEDKA vodka. According to David Milstead of the Globe and Mail, last October Constellation brought some shares in Canopy Growth Corp – a medical cannabis company. In Canada and slowly in the US, cannabis is becoming legal, upon becoming legal the market size is expected to increase.

When Constellation Brands bought the shares, they were likely thinking long term because this is a new industry, but what it did was offered a stamp of legitimacy for smaller investors (full disclosure I own some shares in an Index fund) to buy and for institutional investors to begin nibbling at the stocks.

Constellation spent $245 million to buy 18.9 million shares at $12.97 a piece. In addition it bought warrants to buy another 18.9 million shares at 12.97. The warrants expire in 2020.  At the end of June, the shares were trading at $36.93. This means the investment is worth close to $1.2 billion – $700 million for the shares and $500 million for the warrants.

The company because it owns 9.9% of the company avoids the equity method of accounting where it would take a proportional share of Canopy’s losses and place them on the balance sheet. According to Robert Willens a Wall Street analyst, if the company owned 10% or more, given Canopy lost $70 million, the company would report a $5 million cut in Constellation earnings.

Linking to dividend paying stocks, the reporting of taxes helps you understand why companies do some of their actions. The purchase by Constellation was a long term benefit because the laws are changing, but not the taxes. There are many considerations and taxes and the rule of law are important aspects that go into making investments profitable companies make. It is prudent for profitable companies to have investments in multiple companies and industries shift. Sometimes these investments help make the company an even easier company to make an investment in.

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

 

For every company, how the supply chain or logistics or execution of strategies will tell you how well that company is doing. For the auto industry, There has been a system which lowers costs, gives flexibility to companies and enhances margins allowing the auto companies to make money. The system has been built up over the years using NAFTA or North American Free Trade Alliance. US based and the foreign based auto companies including GM. Ford, Fiat Chrysler, Toyota, VW, BMW, Nissan, Hyundai and Honda have all benefited. There are car plants in Canada, US and Mexico; the big auto companies many years ago shifted the parts to Parts Companies who locate near the plants and all is good. The finished product is sold around the world.

According to David Shepardson writing for Reuters a coalition of the big auto companies and part supplier companies have told President Trump if tariffs of up to 25% on cars then hundreds of thousands of American jobs would be lost. The reason is for all the big named auto companies the parts and supplies to make the vehicle come from all three countries. The system open up the process for many states and provinces to offer incentives for the auto companies to locate in their state or province. The plants are now there because of some formula, they are located in the state because the state added many financial incentives for the plant to locate. The state was hoping for the multiplier effect of income spent in their communities and the parts plants, the truckers locating nearby.

The President has the right to impose tariffs, it is for companies to response to the tariffs and other countries to fight to maintain the existing situation. The Alliance believes a 25% tariff would add $5,800 increase to the price of a car and given car and truck sales over the 3 countries cost $45 billion a year to consumers. In terms of jobs, it is possible up to 200,000 jobs would be lost in the US and 400,000 plus jobs lost in non US countries.

In addition, both Mercedes and BMW which have plants in the US would cut back because some of the production is sent outside the US and would be exposed to tariffs in other countries. Yet the President believes trade wars are easily won.

Linking to dividend paying stocks, while auto stocks and manufacturing are important to the economy the real driver of the economy is services and technology. On the internet we think of free flowing services. The next round the countries will tackle will be services and technology, where most companies derive half of their revenues from outside the US borders. There is a reason why trade wars are not easily won, hopefully the President will learn that and there will be calm in the marketplace.

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

For the past 70 years, Corporate America has been benefiting from a supply system which enables the companies to reduce costs, maintain and increase margins to benefit the shareholders of the company. The system while nominally keeps the corporate head office in the US, allows for the companies to source, manufacturer, distribute goods made around the world to consumers. A classic example is Apple – the engineering and head office is in the US, the iPhone is made in China and the margins remain high for Apple to make a great deal of profits. The US President similar to all leaders around the world has a right to impose tariffs on goods and services to try to stimulate more manufacturing in the US. Although with Artificial Intelligence and Robots, the head count at a typical factory will be much lower than the past. President Trump imposed tariffs and Corporate America does what it always has and will, look at their self-interest before the country of origin.

In the case of Harley Davidson, the marketing appeal of the motorcycle – typically aimed at men, allows the President to be caught up in the appeal of the company. If the President had examined the company by looking at the website, it would have noticed Harley while based in Milwaukee, Wisconsin has production facilities outside the US. The strategy of the company is to add 2 million US riders per year, grow the international business to make it 50% of the company and deliver superior returns. The company has manufacturing plants in the US, Brazil, India and Thailand. This is good for the company for it has options when politicians in any country decide to impose tariffs. Invariably one of the other countries where it has operations allows entry into the country. If President Trump wishes to impose tariffs. other countries will impose tariffs on the US, Harley can lower its head count in the US and increase it elsewhere.

Linking to dividend paying stocks, the global supply chain works very well until someone tries to relive a time gone by, but politicians are elected to do something. For 70 plus years, the supply chain has been evolving to what it is now and if you watch Shark Tank or shows similar to this – it is amazing where the cost of manufacturing and transporting goods is cheaper than doing it in the same country.  Tariffs might change the supply system and it is good to see how companies will adapt or are flexible to changes. Although politicians seem to give with one hand and take some back with another.

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

In life and with companies having plenty of cash is a good thing. Sometimes the market rewards the companies because they would tend to have low debts, sometimes the market believes the companies are undervalued because they have not or could be using some of the cash to buy another company. On the stock markets, it depends but in general cash is good.

Emily Halverson-Duncan of Morningstar Research analyzed companies with strong cash flows compared to their peers. In all research, you can easily find more elements to compare in order to make a decision. It is important to find some easy method to determine when something changes, do you like the change or should look for alternatives.

Ms Halverson-Duncan used the following criteria:

free cash flow in the top 1/3 of peers

trailing free cash flow in the top 1/3 of peers    (continues to narrow the field)

dividend payout ration less than or equal to 80% – companies need to retain money to fund growth

5 year annualized sales growth greater than 0

5 year annualized dividend growth greater than 0

5 year annualized earnings per share (EPS) greater than 0

 

Company                   Mkt Cap      Div       FCF     Trailing      Div P/O  5 Yr       5 Yr      5 Yr

($ Bil)          Yield    Yield    FCF/Share  Ratio     Sales gr  EPS gr  Div gr

Alliance Data           13.108        1.0          12.1       45.61          10.7       21.5        17.0       38.5

Lam Research          28.658        2.5            8.5       13.64          25.4       21.8        58.6       46.7

Signet Jewelers          3.439      2.5           33.2       25.65          37.3       14.7        10.2       19.0

Gilead Sciences       92.409      3.2             9.4          8.02          39.7        28.9        29.9       72.5

Principal Fin            15.940      3.7           24.8        14.56          36.6       10.4          9.0        15.2

Discover Fin             25.621      1.9           14.1        14.07          18.1       11.8          4.5        12.9

Broadcom                112.111     2.7              5.5        15.33         40.0       53.6         72.9       87.3

American Fin              9.601     1.3            23.0        23.91          16.8        8.5         13.6       13.1

Reinsurance Group    8.886    1.5             15.4        25.99         17.5         7.3         15.5       13.5

Lear                              12.979    1.4              7.8         15.98         14.4        12.3       33.6       46.9

The other companies in the top 15 were McKesson, United Health, Skyworks Solution, Boeing and Amgen

Linking to dividend paying stocks, any company that has a very good cash flow is an excellent company to whether any downturn and to take advantage when its competition stumbles. The danger is the companies buying into non related industries because they have the cash flow to do so – sometimes it does not work out. The issue is cash is good, but watch what the companies do with it. In addition, with dividend paying stocks one of the prime aspects of buying is to ensure the companies can continue to pay dividends and this is when free cash flow with help you.

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

Every President has the right to open and close the borders,  in late June the administration’s zero policy on immigrants and their children was all over the press. Whether you agree with the policy or not, it is important to examine the operations of it. The administration set up a  policy which then needs to be implemented. However the policy was set up with a variety of variables which means it was set up to fail. There could be a practical reason to take children from their parents, but if a child has travelled with their parent for thousands of miles, unless they are very unhealthy it stretches the mind why do it? If a child is taken from the parent at the border, why would an agency send the child from Texas to New York City? Along the way was there no other place that residents spoke Spanish? If you examine the population of the south-west, Spanish is the second language of most people because people move back and forth across the border to work, to shop, and to live. Another issue is where are the children and can they be reunited with the parents? It is hard to understand with the amount of surveillance that is possible on individuals, nobody really has an accurate list. (Perhaps all the children should have been given cellphones).  Is this by design or incompetence? Over the next month, by the time this is read. more blunders on the implementation will be heard and spoken about in the media.

Linking to dividend paying stocks, one of the reasons you want to buy the stocks is the company’s know how to implement their strategies or you are paying for their execution of policies. The companies are more correct than wrong, although many avenues have been travelled. The companies implement what the customers will buy and the customers like what they see for a variety of reasons. In the above case of border families, the agencies responsible did not implement and made a mess a crisis. If the companies you invest in implemented as badly as the above example it would be prudent to find better alternatives.

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

President Trump is his wisdom has decided to invoke tariffs or a trade war which the US will lose. The world of supply management is complicated because the dominant players which have tended to be US companies have over the years structured trade to benefit themselves as opposed to the country where they are headquartered. In this fashion, many of the items Wal-mart sells comes from China or offshore. At one time most of the items were from the US, but it shifted.

The domestic auto industry moves between the US, Mexico and Canada. If the main difference is price, the item will typically come from Mexico because labor costs are lower than the US. If the item is related to benefits the item may come from Canada because benefits are lower in Canada as workers do not pay health insurance directly. There are multiple variations. For companies in Europe – both Daimler and BMW have plants in the US to service the US market and to ship to China. According to an article by Edward Taylor of Reuters Daimler’s plant in Alabama and BMW’s plant in Spartanburg, North Carolina face millions of dollars of losses if vehicles they make will not be able to ship or they will earn less money. BMW’s plant is the largest vehicle exporter from the US by value – much of it goes to China. BMW may be able to move some production from Spartanburg to a plant in China to continue servicing the Chinese market.

Trade is complicated and there are no winners just losers for employees and consumers.

Linking to dividend paying stocks, the companies are doing their thing until politics intervenes Sometimes politics is good, sometimes it is useless from the company’s perspective. In past trade disputes, when the next election came along the policies changed, will it be the same with President Trump’s policies?

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