In one of the free newspapers which are available throughout many big cities an interesting picture was in the paper. The picture looked like a baby giraffe or at least what one suspects a giraffe to look like, however its tail was off which read to the reading of the caption. A lady has the ability to bend her body backwards and allow her hands to rest on the floor; in this shape she had the idea if she extended one of legs it would be in the shape of giraffe. The lady, Beth Sykes from Featherstone in England teamed up with a friend and body art painter Emma Fay, to paint her body to look like a giraffe with Beth’s foot as the face. According to the team it took about 6 hours to do the painting. It likely took many more going from yes it could look like a giraffe, to finding the correct colours, and the other aspects which needed to be done before painting would start. The result was very well done.

Linking to dividend paying stocks, to pose for the picture the artists did their homework and used patience to get the job done, it took 6 hours to do the painting. Often times it is reported when people invest their money, they invest based on one phone call and say ok do it, as if you do not do it money would not be made. When you give yourself patience or time to make a decision, money is not lost. One method to ensure you limit your loses is invest in stocks which pay a dividend. With this method, whether the stock goes up right away or goes up over the course of the year it is ok, for in the meantime you have received your dividend payments. When you add the returns from the dividend and capital gain, for limited risk the return is good.

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

When you look at investing there are many many choices, for most people, in order not to lose money, the list they need to look at should be a narrow one. Within the narrow list are many choices and very few of them will turn out to be a bad one, but things happen to all companies. In the Globe and Mail on Wednesday, Michael Bowman (mike@bowmangroup.com) looked to the criteria of companies that have a good credit rating as designated by Standard and Poor’s. The highest is AAA and Mr. Bowman started his criteria at A. This should mean companies can pay their debts.

The next step to narrow the field even more was to ensure the companies have a 3% dividend yield or better or the company makes profits.

Continuing the narrowing process is to look at the Return on Equity (ROE) and the number decided was greater than 10% which is how much profit does the company make for a dollar invested in percentage.

You can change any of the criteria, but when you have put all the above criteria together the the result is low risk companies which have a history of making money and retuning some to its shareholders. There never is no risk, but with this criteria you will notice a Return on Equity in the range from 11% to 38% with most in the high teens for Return on Equity. It is not surprising the shares went higher over the year. Next year it may not be as high, but in relative terms your risk is going to be lower than many other choices. The dividends will give you a base return on your investment, plus possible capital gains and you are looking at a solid investment. Which company do you start with is up to you, but your portfolio should have more of these type of companies in it for both the short term and long term.

The list Mr. Bowman and his team come up with found the largest and highest rated company on our list, at AA+, is General Electric Co., which makes everything from light bulbs to military engines.

McDonald’s Corp. has the highest ROE on our screen. The company serves 70 million people each and every day from its 35,000 restaurants in over 100 countries.

All of Canada’s Big Six banks made the list.

The highest P/E ratio belongs to Public Storage. The company owns and operates 2,200 self storage facilities in the United States and Europe.

Great-West Lifeco Inc., IGM Financial Inc. and Power Financial Corp. – all companies under the Power Corp. of Canada umbrella – also made the list.

Quality companies with credit ratings of ‘A’ or better

Company            Ticker  Market Cap   Dividend Yield  S&P   P/E  ROE

General Electric     GE-N    284.52        3.11      AA+   15.34    11.04
Chevron Corp      CVX-N    242.74        3.40      AA     10.34    15.00
Pfizer Inc             PFE-N    229.57        3.02       AA     14.17    32.27
Procter & Gamble PG-N    236.44         3.02       AA-    19.61    16.02
Cisco Systems CSCO-N   127.44         3.07       AA-    13.05    14.65
Royal Bank of Cdn RY-T  103.99         3.50       AA-     13.05   19.37
TD Bank                 TD-T    91.01         3.28       AA-     13.29    13.97
Eli Lily & Co          LLY-N   72.65          3.35       AA-     13.23    28.92
Intel Corp            INTC-Q 137.24         3.64         A+    13.31   17.58
Bk of Nova Scotia BNS-T  76.82         3.77          A+   12.48    16.37
Costco Wholesale COST-Q 55.72       7.17        A+     25.44   17.15
Bank of Montreal BMO-T  46.70          4.03         A+    11.33   14.96
CIBC                      CM-T  35.98          4.21        A+     10.83    20.84
Great-West Lifeco GWO-T 31.26        3.92        A+     14.51    16.67
Power Financial     PWF-T 24.83        4.02        A+     14.00    10.81
IGM Financial         IGM-T 13.54        4.00        A+      17.76    17.22
Public Storage        PSA-N 31.94       3.07        A        34.65    16.11
ConocoPhillips       COP-N 90.34       4.05        A        13.04    1 6.43
Sysco Corp           SYY-N 23.56         3.13        A        18.03    19.22
McDonald’s Corp MCD-N 106.95       3.27       A        17.41     38.45
KKR & CO LP      KKR-N 18.82         5.75       A       1.78        29.25
National Bank of Cda NA-T 14.18     3.92       A        9.43       20.67
Diamond Offshore DO-N 7.55           7.19        A       11.53      11.91
Questar Corp       STR-N  4.60          3.01       A        19.45     14.43
Piedmont Nat Gas PNY-N 2.92        3.63      A         18.61       12.13

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

In the book Eating Dirt by Charlotte Gill, Greystone Books, Vancouver, 2011, the author writes about the people who plant trees for a living. We all know trees are a valuable export from North America and the wood to build houses comes from somewhere, after the logs are cut from the Cascadia area or the west coast – California, Oregon, Washington State and British Columbia, someone needs to plant trees for more to grow in the future. The book describes the people who do this and as the many things you learn about the environment as they do the work. In addition, there are interesting sidebars about the uses of trees. For most of us, planting a tree is a trip to the nursery or making a donation to a group which will plant trees. The trees in the book are fir trees which come in test tube size and the group will plant near a million trees before moving on to the next destination to plant another million trees and it continues.

One side bar in the book was about countries and their need for trees and a simple theory about the size of the Roman Empire and what drove it. At one time the Roman Empire covered much of Europe, Africa and the Middle East and at the time was the greatest empire in the world. Different reasons are given for the size and one of them was the discipline of the legions or the military. The Emperor would go to war every 5 years or so and would demand a fleet of ships. The ships were wooden, where did the wood come from? At first it came from Italy, but that did not last long, then the empire took trees from Europe and Asia Minor, as the demand for fleets grew new lands needed to be taken for their resources. Perhaps if you watch the first part of the movie Gladiator from 2000, you will know why they are in the part of the country they are in.

In one of the frequent wars between France and England many years ago, the timber came from the Baltic area (Sweden, Finland) and who controlled the Baltic had a strategic advantage. When France controlled the Baltic, England found its colonies in North America rich in timberland. The tide was shortly turned and wood has been a constant export product from North America and a reason to invest.

Linking to dividend paying stocks, whatever industry you are in, your sense of the importance to the world is made. In this case the importance of trees and the search for resources. While planting trees is a great thing, trees take a long time to grow back to the desirable heights, but there needs to be a start, perhaps even more should be done. A question for the forest companies is when do they cut the new growth and what do they meant by that? In the search for a sustainable continuing dividend, you want to ensure the time frames allow the dividend to happen.

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

Every few years in seems people treat other people very badly and for various reasons decide the best action is to eliminate them. Governments assist in the elimination and things go on in the country. For people similar to me, in seems odd that you would want to kill your neighbour just because they have a different religion, tribe, etc. In the old Star Trek series there was a group that had their faces painted black and white and one of the characters asked why are they against the others and he said to the effect I am black on the right side and white on the left, the others are white on the right side and black on the left. To the Star Trek personnel, they both looked the same. In the last 20 years the world has seen many examples in Yugoslavia, Rwanda, Cambodia and many other countries have either eliminated or did their best to do so.

In the genocide in Europe where Hitler’s forces implemented the final solution or the elimination of Jewish people, as well as those that were not deemed strong enough for the new race – handicapped, those with epilepsy (full disclosure as a young person I took drugs for epilepsy), mental problems, etc. The German policy towards the social services was likely not good if you were a patient. One of the few who helped saved hundreds of Jews avoid the concentration camp was Oskar Schindler and trying to understand why has been a great mystery. A book called Oskar Schindler and the His List edited by Thomas Fensch, Paul S Eriksson Publisher Forest Dale, Vermont, 1995 tried to answer some of the questions. Many people such as myself had heard or knew the name Oskar Schindler through the film Schindler’s List. We went to watch and thought it was was good that someone did something and went back to our lives. When we hear of the genocides in the world, sometimes we wonder would we do something? would we have participated with the approval of the government? In the book, Mr. Schindler is not a flattering character he was pro-Nazi, owned a plant to gain government contracts to both enrich himself and use “slave or very inexpensive” labour. However he ended up saving the lives of over 1,100 people and no one really knows why. Perhaps that is good thing, for it shows all of us that we can use the resources we have to do the right thing.

Linking to dividend paying stocks, as a shareholder you want the company you own shares in to make a profit and pay the dividends. In many companies the salaries expense is a large one and finding efficient and productive means to lower it is a very worth while goal. In the company the author works for we have share bonus program which the company contributes to what we buy in owning shares, perhaps that is a good method not to go after the slave labour market. All companies must balance the information they receive and the demands of the world, and every year it seems to get both easier and more complex, but doing the right thing is a good thing.

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

Recently a history of a financial institution almost 200 years was picked up and read. In this case, the bank is a Canadian based one called the Bank of Montreal, the book is A History of the Bank of Montreal, Merrill Denison, McClelland and Steward, 1966. At present the Bank of Montreal has operations across Canada as well as in the Midwest of the United States centred around Chicago with Harris BMO. When the bank was incorporated the funds came from Montreal, Boston and New York although majority voting shares were in Montreal. The bank started as an commercial bank for the bills of exchange and trying to make money on the exchange rates between Montreal, New York and London. There were very few individual depositors in those days (where the bank makes the bulk of its money, now days), over the years banking changes.

In reading the history there are some themes that emerge including cycles in the economy – things happen in the world which will have economic impacts on banks and their balance sheets. In the 1800’s countries went to war – the economy was boosted by the extra military spending, when the war was settled there tends was close to a recession as the countries not longer needed the supplies. In today’s times more than one bank is sustained by safekeeping government funds as well as the military payroll. In the Bank of Montreal’s case much of the history is ensuring the company has good relations with the Colonial office in London. For all legislation or bills needed to be ratified by the English Parliament and they took their input from the Colonial Office. One aspect of dealing with the Colonial office is similar to bureaucracy everywhere, most do not like risk taking. Thus they ensure rules are made to limit risk taking, do not interfere with UK based banks and as such fewer banks tend to fail. As a customer and a government this is a good thing, sometimes the company wishes to take more risk than it does, but bureaucracies limited the risk taking.

In the case of fundraising to start the company, similar to today, while there is always some money available in your hometown, in this case Montreal and being Montreal was an English colony you would have thought linkages to London would have brought money from there; but in the end in came from Boston and New York where the Montreal companies had trading relationships. It could also be thought before the Erie Canal was built the harbour of Montreal was the busiest on the Great Lakes system, primarily because of the rapids on the St. Lawrence. After the Erie Canal was built it took a long time before Montreal responded to the new trade route and raised the money to build canals on the St. Lawrence.

Another theme is as the Bank grew and wanted to expand outside of Quebec, the competition used its influence at the parliamentary office to lessen competition. Banks occupy an important part in the functioning of an economy, it is possible to exist without one but it is much easier to operate with it and those on the Board of Directors level tend to interact with government to ensure the playing field is not changed too much. In the case of the Bank of Montreal, one of its main competitors was very deeply enshrined with the government of the day and also charged high fees, which meant the Bank and other competitors constantly voiced their concerns about the monopoly like conditions which competition could open up for better fees and services to the community. It took 20 years and various changes in governments before the bank could expand beyond Quebec.

Linking to dividend paying stocks, one reason to read the history of the bank is many banks are consistent in paying dividends over the years they have been in operation. For most, raising the dividend is to be seen and having a portfolio with banks is a very good place to place your money. After the 2008 recession banks are now making more money than they ever had been and the price of the stock is reflected in the changed outlook for the economy. As in the past and it is now, the art and practices of lending money, charging interest and getting paid back has never changed. Some banks focus on businesses, others on retail and both strategies have their advantages and disadvantages. Generally the banks do not lose money on retail, except when residential real estate prices fell across the world, hopefully that will not happen again.

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

As the Winter Olympics is beginning to wind down, one of the local radio stations had a documentary about ice which was caught while driving through non ice conditions. My ride was not long enough to hear all of the show but a ship captain of an ice breaker was interviewed. He talked about ice breaking – a large double hull steel ship which breaks up ice to allow for other ships to move in the wintertime. He explained how he has to prepare where to go, how to break up the ice and using different strategies to the job. My limited understanding of breaking up ice was the big ship which has added strength would break up the overnight forming ice and do it on a regular basis. It was interesting to find out being prepared, having a game plan and trying to execute it with enough flexibility to try again if the ice was not broken. The ice breaker captain talked about a gut feel of where the ice would be more vulnerable to break up and how interesting his job is.

Linking to dividend paying stocks, similar to the ice breaker captain, doing your homework, having a reason to buy the stock and not falling in love with it so you have flexibility to change your portfolio also applies to picking good stocks. The past history has shown that dividend paying stocks perform better than growth stocks (unless they get taken over with high multiples) but if they do not achieve a takeover, the dividend plus the capital gain is an excellent method to invest your money.

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

The Power of Why is a book written by Amanda Lang, Collins, Toronto, 2012 in which the author examines curiosity and the ability to ask the right questions can lead you to innovation. There is no magic formula to innovation and everyone does it at, although most people tinker at the edges for a variety of good reasons. One of the reasons is as a young person we were curious about everything, but the people around us were not, so through a host of different methods we are taught it is best not to be so curious. The older you get, often the less curious you are, the better marks you received in school. Moving into the workplace, meant working for someone else and they often received the job by not being curious. We are able to think about changing in the workplace but not allowed to say anything until either senior management wants innovation or a new boss arrives who wishes to hear new ideas. What they do with or do not do will determine if you have any more ideas about work.

One easy example people have is browsing on the internet – the internet is filled with vast amounts of information, if you were to check your normal sites where you go, would they have changed in the last 6 months? 1 year? 2 years? The answer is likely not much, which means you are in the vast majority. There is nothing wrong with the answer, it just a quick method to show most of the time we are not that curious and do not ask why more than once? There is a theory you should ask why 5 times to get to the real answer, however coming up with the answer to why 5 times will take some research.

A wonderful example in the book was a hospital – in the hospital hand washing is encouraged, the nurses know this better than anyone else. But in the hospital, the surveys were showing the nurses were not washing their hands, guest to the hospitals were. The question of why? The answer was the soap the hospital was using made the nurses skin red and dry. It turns out the reason why the hospital was using the soap was the purchasing department was under constant pressure to save money and picked a brand which cleaned and was relatively inexpensive. If someone only washed their hands once or twice, they would not have the same problem as the nurses and would be satisfied with the hospital policy. However with multiple washings skin was turning red and dry for the nurses. Two different departments trying to do the right thing by management, but the solution was not working out for patients. Eventually a soap which did not make the nurses hands red and dry was changed to.

The above example and there are plenty more in the book is a great example because people were trying to do the right thing; 95% of the time there will be a reasonable reason why solutions are chosen in the method they are; it takes research to find the root causes of the problem; and solution looking back the solution seemed easy. Innovation does not have to be a game changer, change the world, most innovation is trying to make things better.

Linking to dividend paying stocks, these companies are not necessarily looking for innovations that will change the way they operate, an improvement from year to year in the method they serve their customers is good. Most times similar to the hospital example, there are different ideas to how to improve from each area of the business, and anyone working in a medium to a large sized organization knows management often favours one department over another. Asking the why? and actually receiving answers is the hallmark of an organization at least willing to do innovations.

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

Onward is the name of the book written by Harold Schultz, Rodale Publishing, NY, 2011 and is the story of Starbucks coffee company. Mr. Schultz joined the company shortly it was formed and has been with it ever since becoming the global powerhouse of over 17,000 coffee shops and multiple delivery vehicles for its coffee. In the book, the company went from a roaring success where the success of neighbourhood was brighten by a Starbucks franchise to belt tightening to save the company to going back to core values to remain an important part of millions of people who drink coffee. If you are a coffee drinker you have likely had a least one cup of Starbucks either at their stores or though their other delivery channels. The Starbucks is the premium brand and is meant to connect to people who interact at the coffee shop. The book centres on the transformation from slow growth to no growth to recovery and the efforts it takes. When a company moves to no growth and then to recovery, it essentially has to refocus on what made it important in peoples lives and to only do things that fit into their core reason for existence. All that is easier to say than do, because to do it means lots of people have to believe next year will be better. When a company is in growth, whatever the percentage of growth, it is easier to focus on next year, because there are always many things that can be done better – including operationally. When a company is in decline, trying to find resources to invest to do better becomes harder, for the mantra is doing more with less and considerably less is better.

Mr. Schultz had his team could easily find the core values which was the company reason to exist, people come in for great coffee. However, all the systems in the Starbucks company had to be revamped to keep with and expectation of the times. While they were doing this, the competition was squeezing them as much as possible and the company experiencing decline in store revenues. When companies go in decline they need to examine all aspects of the business and come up with solutions to little things that add up to a lot. An example is Starbucks threw away a lot of milk, milk is expensive, but to do the job meant throwing away milk. As the company went through the reorganization, Starbucks found a simple but effective method to waste less. It took a lot of people to look at the problem and find a solution, but it was one of many solutions that needed to be found.
In order to climb up from revenue declines, many different areas of the company have to doing the right thing in terms of what you see and behind the scenes or operations to achieve them in very short time is why the book is worth reading and learning from.

Linking to dividend paying stocks, all companies experience cycles in the business, grow is the easiest and seemingly best for shareholders because the profits are being made. In the downturn, if the company goes back to its roots or reason for being in business, other decisions whether they are good for the business or should you do become much easier to make. In one line of thinking, downturns can be good (as long as the company does not lose too much money) for the downturns can make management and the strategy for the company better for the long run.

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

There are many books about innovation but few are about Hacking Work, one such book was written by Bill Jensen and Josh Klein, Penguin Books, 2010. The authors premise is in order for the bulk of the workforce to be more productive, you have to break the stupid rules to achieve smart results. Anyone who works or has worked for a medium size or large organization knows there are many rules. If the organization is corporate, the rules were all designed for corporate decision making which is very good for the corporation. When a rule is designed this way it is a one size fits all and whoever administers the rules becomes an expert with the rules. Usually the rules are there because someone in the past has broken some which caused concern and/or losses to those who administrate the rules. Sometimes they are put in to save money on insurance premiums or government regulations or an outside agency or a previous boss who used the numbers for something. As time goes on, people accept them, find them non productive but live with them. The authors believe you should find a way around the rules, first by finding out why they are the rules exist in the first place. Then slowly changing the rules to fit your needs and finally changing them to allow you to be productive with your time at the company.

There are some wonderful examples in the book and one of them is – a person bought a franchised carpet-cleaning service. In the franchise business, the equipment is supplied and you find the customers. The person thought the tools provided were good, but not great and he began to redesigned a number of the tools in order to be closer to great. This has resulted in having an unique competitive advantage – my competitors are competing against the way I am supposed to be doing everything, not what I actually am doing. The book does not say but hopefully the carpet cleaning service implemented the new ideas across all their franchises.

In an more service environment, the process would be find the rules that drive you most crazy – either they seem to be stupid, lack common sense, and because the boss said I told you so. If they are related to technology which many are, methods such as gmail, google docs, open source Web tools are available and also know many of the solutions are to be found on the internet. Information that used to be limited to senior management is often found on the internet. For example, many organizations have an arrangement with firms to look after pension money, there are a variety of sites which list how well all pension fund investment firms are doing. You can check out how yours is doing and knowing this will help you in your financial future.

One of the reasons you will hack as the authors say is all organizations keep a very close eye on their employees, every time you sign on, how often you are not on, what you do, but translating all that information to whether you are productive or not is not perfected. You can help the process and counteract claims against you, because the information can help show you are productive and important.

Linking to dividend paying stocks, hacking work is really about the changing relationship between employers and employees. For a number of years, where most bosses came through, there was a rather straight relationship, now the relationship is changing to employees proving they are a valued asset and wish to remain working at the employer. Companies are slow to adapt, the old days where only the senior management had ideas are hopefully gone (and they spent most of the time hoping the president or the next potential president like them) to everyone in the company needs to be valued for their ideas and abilities. Companies which adapt well will continue to produce good economic returns, companies that do not will continue to lose talent (employees) to other companies because of the rules that do not make sense any more.

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