Whatever you invest your money in, the only rule that will guarantee you have more is not losing it. If you buy something and the value goes down, it will take twice as long to go back to even, then you have to risk even more for the time you were down. For the 99.9% of us without inside knowledge, we have to operate with the conditions of what investments will gain in the long term? For the most part, if you live in a good neighbourhood for an extended period, your house will increase.

If you invest in the stock markets, the only guarantee is dividends. Unless you are part of the .1%, you will not likely know which stock price will go up or down except for those that trade on a consistent basis do both. The big trick is to narrow the field, if you choose stocks that pays a dividend and over the years has increased the dividend, it is a reasonable assumption in the long term, the stock price will also rise. If you buy and hold the shares, due to the regular dividend payments, you will have more money. If the company decides to decrease dividend payments, you can exit it and buy a better company, but usually you would be aware of the drastic changes that affected the company. However, as long as the dividend is consistent and increasing, the stock is a hold. In a complex world, most of the time the solution is a simple one.

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

If you go to the movies, the trade magazine will have a story about the new movies as well as the Oscars which is coming up soon. As a movie goer, you can enjoy the movie. As an potential investor, did you like the movie? which studio produced the movie? did you like the theatre? Some of those answers can be connected to publicly traded companies. If the answers provoked a positive response, the next thing step is to review the financials of the companies to see if they meet your criteria for investing in. The award shows are great because they highlight the best of the industry and you can easily recognize or learn who the public companies are.  The ones receiving the awards will be first on the review pile, while those not receiving awards could be turnaround potentials.

Linking to dividend producing stocks, in every industry there are award shows, some industries it seems more than others, but each industry has award shows. For the industry you are interested in, enjoy the show for both who receives the awards as well as investment potential. In this blog, one of the criteria is the stock has to pay dividends, which means most of the companies will be excluded, however there are always some that are included. Hopefully the companies you are interested in both receive awards and pay dividends which indicates their commitment to excellence in the field and to its shareholders.

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

The yield of many dividend stocks is around 3 %, why that number?  From George Cloutier’s book Profits Aren’t Everything, They’re the Only Thing, HarperCollings 2009, a number of rules are given based on Mr. Cloutier many years of experience. Mr. Cloutier’s company, American Management Services,  specializes in turnaround of small and medium sized businesses, and they follow a plan. One of the basic rules is for the owners of the business to pay themselves a salary of 3 to 4 cents of each dollar of revenue for doing the job of CEO, while maintaining a profit in the top tier of their business grouping.

Other rules to follow in the book include the owner should receive the largest salary to ensure others know who is in charge. Mr. Cloutier company has a plan that they bring to their clients and part of their work is for the companies to live the plan. This means the company estimates their profit for the year and equally the expected expenses. If revenues go down, start shaving your expenses so your profit stays constant. A plan allows the owner to expose profit leaks and then problems can be solved. There are a variety of other rules Mr. Cloutier believes in including pay for performance, collect the money you are owed, ensure the numbers to run your company or your metrics are done daily or hourly and the owner can see them. These and other ideas including how to grow your business (a great example is a car dealership – the people who come in for servicing their car are they seen as potential new owners?) are outlined in the book.

Linking to dividend paying stocks, the important aspect is the companies that pay dividends continue to make a profit and continue to pay you. Most of the time, you will not have to worry about how the company manages its finances, but whether it is a large company or small one, there are many overlaps and worrying about costs never goes away. If your company is not managing to maintain its profits first, then it is time to look for companies that do.

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

Last week the author read the book Judgment Calls – 12 Stories of Big Decisions and the Teams that Got them Right by Thomas Davenport and Brook Manville, Harvard Business Review Press, 2012. The authors believe one of the reasons why the economy went south in 2008 is lack of judgement in corporate decision making. Thus, they decided to review and find stories of companies that are making better decisions and why? The Organizational Judgement came into focus and the 4 features are: decision making as a participative problem-solving process – how do people affected by the organization have inputs into the problem-solving process? the opportunities of new technology and analytics – the integration of technology into the organization; the power of culture – organizations that practice great judgment have many of the key attributes and values embedded into their operating culture; and leaders doing the right thing and establishing the right context – the leaders role is and are crucial for people take their cues from the leader.

Linking to dividend paying stocks, invariably more companies which pay dividends are rated higher on the organizational judgment scale. While making money and earning profits are needed to pay a dividend, the other side of the coin is long term sustainability. Most of us do not have insider knowledge to how the companies in which we own shares operate, but we can receive on going reviews. The reviews are the shareholder letter, the media reports – what the company is doing in its “home town”, when a company does a product launch – how did it do it? and equally important when something goes wrong how does the organization act? After you have determined the organizational judgment of the company, reviewing the financials is the next step.

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

Yesterday, the author was reading a Linked-In comment about customer service and Bank of America. Afterwards I clicked onto a website by Beyond Philosophy to learn about a company in England called Morgan Sindall Fitout. The company implemented a Perfect Delivery system in the construction business. 10 years ago when the company began its journey, it was a radical idea, because anyone who has done home renovations knows, one thing leads to another and scope creep comes into play. Costs rise, the length of construction gets longer, and what seem simple becomes complex. Morgan Sindall was doing a 24% perfect delivery and now after 10 years in the program is up to 93% which is a testimony to what can be done. Achieving such numbers, along with continuing towards the 100% mark, leads to other aspects of great customer service which are being worked on. Ten years into the program the results along with better customer service are more business, greater profits, better communication on expectations and higher standards.

Linking to dividend paying stocks, similar to Morgan Sindall Fitout, a radical idea can pay great dividends for customers and the company. Most of the time radical ideas are simple ideas, executed very well. Increasing standards in a low expectation field such as Perfect Delivery is getting the job right the first time and on budget. If the competition is not doing it, why can not it be done? There are always risks, in Morgan Sindall the risk was if they did not deliver Perfect Delivery, their fees would be lowered. Their expectation was or it was hoped when they did deliver, people would talk about great service and in the long run they would have a greater market share.

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

In one of the newspapers the writer reads, a section for Kids Camp was inserted with the caption – Camp Skills for Life. Times have changed since the writer was a youth, as a member of Scouts camp and camp skills were integrated into the program; as a member of athletic team – there were specialized camps (which did everything every other camp did plus the Olympic sport connected). Browsing through the insert, all camps follow the same principles as any other business – people need to go and pay fees; camps have to be maintained and staffed; there is a hope that the weather for the numerous outdoor activities planned is good to great; those that have gone previously will recommend and send their kids to the camp; for the adults without kids they can sponsor kids to go to camp; and the camp is fun for both kids and parents.

Linking to dividend producing stocks, all activities are a business and need a cash flow to continue. The camps that have been operating for a number of years are doing that, which allows them to continue for the long term. While brand new camps can and will come forth, the older ones have an advantage, they have been operating for a number of years. If you believe that is a good advantage, then the same philosophy is for your investing. A long term horizon with a continual return to the investors, which is where dividend producing stocks fit into.

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

In the world of investing, one of the goals of everyone is to have more at the end than you started with. But every once in a while, there is eager jump to make money quickly, based on some sort of inside information. You may not have it, but someone you are friendly with does or seems to, except for his inside information does not exist and he only wants your money. The author recently read a book called The Mark Inside by Amy Reading, Alfred A Knopf, 2012. In Chapter One, Ms Reading describes a typical Mark in all its acts. The rest of the book is about the tale of the person seeking revenge to con the con artist, with a healthy sprinkling of the history of people being conned interwoven through the book. It is a good read, because the process still goes on today. Hopefully the stories about the crooked politicians and police have changed for the better. One of the reasons why the con still works today is the wonderful examples of humanity that are prevalent when trust is used for good, can easily be turned and used to con people or swindle them out of their money.

Linking to dividend producing stocks, one method to avoid being conned or swindled is to keep the bulk of your money in stocks that have a history of raising their dividends over the years, as well as you have a good idea of what the companies does. The key to the above is over the long term or over a period of years, your money will grow. If you keep most of your investment money in dividend stocks, you will likely miss the big financial score (you can risk it with your other investment money) but there is almost no reason to change your dividend paying investments.

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

Just about everyone has eaten or heard about McDonald’s. There are very good reasons for it, which seem from the Quality, Service, Cleanliness and Value or QSC&V. Those four words ensure whatever McDonald’s you go to around the world, consistency of high standards will be there. As many who have traveled will attest, McDonald’s is a good, safe choice to eat at. Behind the counter, one of the big competitive advantages of the company is the relationship with their suppliers.

According to the book Vested by Kate Vitasek and Karl Manroot, McDonald’s relationship with its suppliers over the years has been and is on going similar to a 3 legged stool where the legs are employees, owner/operators and suppliers. McDonald’s has a vested interested in its suppliers both living the QSC&V as well as continual innovation for the restaurant. When the company started, this was likely a high risk for the suppliers, now days McDonald’s is large, profitable and pays dividends. The company demands a great deal from its suppliers to invest, to innovate, and to be aligned with the company’s plans which are shared. Suppliers and McDonald’s work with each other to solve problems and look for opportunities in the future. The suppliers work with basic operating principles of fairness, competitiveness, and continuous improvement. The vested model is in contrast to those that continually demand lower prices from their suppliers and the only aspect is price.

Linking to dividend paying stocks, while price is always important, the overwhelming dividend paying companies have a vested interest in their suppliers doing well. It is  important to look at aspects of operations on how the company and its suppliers gain innovation and opportunities. If the answer is overwhelming price, then there are better long term investments, a shining example is McDonald’s.

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

There is a theory to become an expert in something you need to spend 10,000 hours on it. Whether the 10,000 is a perfect number, it is meant you need to spend time on the subject. For this reasons, there are many advisers who do spend time on their particular field, which is great. The time spent leads to gaining a livelihood and the overwhelming majority are trying to do what is right for their clients. In every field, there are incentives or the pay structure influences the decision making. In the world of investments at the retail level in particular some mutual fund companies pay higher commissions than others. A recent article in the Journal of Finance demonstrated what was expected and many consider to be normal, is in fact true. In the MER or Management Expense Ratio, there is a fee for advisers – if the number goes up, there are more sales. That does not necessarily mean it was a bad decision to put money in the fund, it just means with more than one funds to choose from, one aspect the adviser will look at is how much they will or could make from the one with the highest commission or largest fees. The client should ask why one fund is better than the other? what value added are you getting for the higher fees?

Linking to dividend producing stocks – we all know that lowering your fees is a good thing. If you have to generate an extra 2% to make up the difference in fees, a question to ask does your fund perform better or should it perform better? One of the reasons institutions put money into hedge funds is the expected higher performance even though the fees are higher. There are ways of reducing fees such as buying index funds or ETFs or with dividend shares enrolling in a DRIP or Dividend Reinvestment Plan where many companies offer a discount on buying extra shares. As individual there will be fees somewhere in the price, it is important to note it and whether the fee is worth it; sometimes the fee is worth it. If you are going to pay extra, then you should expect and receive more. Many people have some low fee funds and higher fee funds and compare, the ones consistently receiving better returns will receive the bigger share the next year, which is the one of reasons why this blog is about dividend funds.

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