In the financial pages today, is a story about Costco paying a special dividend. If you are a shareholder, you will be getting extra money. Special dividends are awarded after the Board has examined many opportunities and decided the best use of the cash is to give the money to the shareholder. The reasons for having the extra money is varied  and can include: a sale of a division as the company restructures into core holdings; changes in government regulations which encourage one time events before the regulation is effective; the margins in selling product were much higher for example in commodity prises rose more than what is termed normal; and other reasons come into play.

Dividends by their nature go to shareholders, the Board is well aware of who or what institutions are the biggest shareholders. Does having a special dividend payout increase the insiders accounts, yes. The difference between enriching the shareholders and giving a larger payment to employees is anyone can own shares and shares imply an ownership in the company. The writer’s bias is the Board is doing the right thing.

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

We all have a vision of what time means. If you are around teenagers, the time lines seem short; if you are in the 40’s the time to retirement seems long. If you are in your retirement years, time seems to pick up and the days goes by quickly.

When you invest, the ideal is for a long term horizon, ensuring along the way income is continually received, with the added bonus of a capital gain. One tired and true method is to look at whether the companies you are investing in have been paying dividends for a few years. If they have, you get to project what their outlook should be. For example, if it is a pipeline – will people be needing the services. If the answer is yes, the group of stocks should be high on your list to accumulate and hold. As your projections come true, along with the continuing dividends, invariably the stock price will rise. You will have done well. Investing can be simple.

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

In the homes where we live and sometimes the workplaces we inhabit, art is displayed. Some art is related to festival seasons, some is on the wall for pleasure. Once in a while, a piece of art is or becomes more valuable than childrens’ art which is priceless. The art world is generally inhabited by smaller users who pool their resources to cosign pieces to galleries who try to sell it. Once in a while, you may go to an auction and bid on art for either at a profit or nonprofit fundraising and try to gain a good deal. If you bid at the nonprofit fundraiser, both you and the nonprofit benefit from your bid.

Linking to dividend producing stocks, while art has the advantage of seeing your piece daily and cause a good reaction, dividend producing stocks have the advantages of capital appreciation and a continuing income stream. In addition, because of the continuing income stream a floor price of the stock is automatically set. With the dividends one of the things you can do is go to the nonprofit fundraisers and bid on items including the art.

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

Donald Keough a former President of Coca Cola wrote a book called the 10 Commandments for Business Failure, Portfolio Books, 2008.

Mr. Keough had many wonderful phrases in the book, one is Can the Sofa be Moved?

In many homes, one of the pieces of furniture is the sofa. It is located in the living room and when it was first located, various viewpoints on the layout of the room were tried and the sofa was placed. Years later, except to clean underneath it, the sofa is rarely moved. The sofa maybe in the perfect place for the room and there is limited reason to move the sofa. However, the fact is in most homes the sofa is not moved.

Connecting to dividend paying stocks – the first move was successful and given the usage, it has proved to be successful. The issue maybe given changes to the technology in the room, is the sofa still in the right place? For example, my parents’ TV was a couple feet wide which limited the location choices, now with flat screen TVs, the TV can be in a variety of locations. It is my belief, Mr. Keough was using the sofa example as one that everyone can understand – what was the underlying assumption made when the sofa was placed? and even though the sofa can be moved, how often is it? What is the underlying assumptions for the business plans of the stocks that you own. If the plans are still valid, then nothing has to be done, similar to not moving the sofa. If the plans have changed over the years, sooner or later something has to be done.

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

Donald Keough a former President of Coca Cola wrote a book called the 10 Commandments for Business Failure, Portfolio Books, 2008. The numbers are correct in 2008 as well they will be in 3008. The second 5 commands are:

1. Don’t Take Time to Think

2.. Put All Your Faith in Experts and Consultants

3. Love Your Bureaucracy

4. Send Mixed Messages

5. Be Afraid of the Future

6. Lose Your Passion for Work – for Life

Coca-Cola is a large organization and similar to large organizations, it does not take long before running into many of the commandments. Not all of them are wrong, but to a degree they can be. Asking consultants their opinions can be a very a good thing, not making a decision based on your understanding of the business is not a good thing. Consultants have two purposes – one to give an understanding to the problem and second to call for more research, because there rarely is a perfect answer and to give them more consulting work.

Bureaucracy has a valid role to play, however if the procedures need to do something very basic become cumbersome, and they can be, something needs to change. Are the rules and procedures helping enhance the customer relationship or hindering it?

Many organizations send mixed messages, they suggest one action for all to follow and then reward people for other types of actions. Eventually everyone will determine, what behaviours the company rewards is the actions the company will receive.

Lose your passion for work and life can be the most serious of the commandments. You work in the industry for a reason. The industry has ebbs and flows and over the years you have developed relationships in it and believe the industry makes the world a better place. For many years, you have consider how to enhance your company and when you lose your passion, there are two choices one re find it or move to something you are passionate about.

The above commandments are more internal than external, which is why reading or listening to management’s views is important. Do they follow some or more of the commandments? What is their focus?

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

Donald Keough a former President of Coca Cola wrote a book called the 10 Commandments for Business Failure, Portfolio Books, 2008. The numbers are correct in 2008 as well they will be in 3008. The first 5 commands are

1. Quit Taking Risks
2. Be Inflexible
3. Isolate Yourself
4. Assume Infallibility
5. Play the Game Close to the Foul Line

Each of the above and part two tomorrow are designed to ensure you do all the things you wanted to do when you were starting out. Although owning dividend producing stocks suggests you want the status quo, it does not mean the status quo will remain just because you want it to. Things change and so do the basic assumptions – in the world of Coca-Cola the 6 oz bottle was a blessing and a curse. It was successful and people began to believe the reason the company was successful was the bottle. When Pepsi introduced the larger containers you see in the grocery store, it was a revolution and something it took Coke a great deal of time to adjust to. When they finally adjusted, many of the long standing beliefs they had were changed – from a personal stand point – it was the drink, not the bottle. Coca-Cola is back on top, but it has gone and will continue to go through a variety off trials and tribulations. Mr. Keough talks about the bottling divisions, when they were set up the regions was where a horse and carriage could deliver. Did that apply in the 1950’s, 70’s? If you owned a franchise would you want to give it up? Eventually the issue was sorted out, but the concern is always what is the underlying assumptions of the business? are they still relevant? what would need to be changed? As dividend holders, we have to ask the questions to ensure the dividend is safe.

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

All companies that earn money have a yield. If you buy a bond, there is a yield. When interest rates go down, for example from 4 % to 2 %, if you owned the bond at 4% your yield went up. If the interest rates go up and you own a 2% bond and rates go to 4%, your yield went down. It is the same process with dividend paying stocks – if and when the stock price goes down, the yield goes up. If and when the stock price goes up, the yield goes down. The words if and when indicate the action will happen for no stocks that pay a dividend has a static or flat stock price, there will be activity everyday. The questions is what is good? and when do you need to look at other variables?

A good measure is to compare the entire index of the exchange you are buying versus your stock. For example if the index is at a 3 % yield and your stock is yielding 6% or double, this is a signal to ask why is the stock price of the company you own going down, for the yield has gone up. That does not mean you have to sell, but you have to consider if something has changed in the reasons you own the company. It can be the company is dependent on higher commodity prices and prices have come down. If that is the case you ask when will the commodity prices go up? If the time period is short, then you may do nothing.

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

When you receive dividends from a dividend producing company, one of the many equations to consider is the payout ratio. The payout ratio is how much of the company’s earnings are being paid out in dividends. In an ideal world – 50%, but for companies that have their earnings regulated similar to utility and pipeline companies – 80% is good. As a dividend buyer you believe one of the best things a company can do with its money is give money (dividend) to its owners or shareholders..

When you look at the payout ratio one of the the first questions will be is the ratio sustainable? will it continue for a long period of time or at least as long as you are intending to own the shares? There is never a perfect answer, except in retrospective. The company could have lower earnings for a year, the ratio goes up, is that bad? will it change the following year? what can management do to decrease the level? and a host of other questions that will need to be answered. If the payout ratio is sustainable, then as long as you know how the company makes its money, you have little worry and you can move to other ratios and enjoy the dividend.

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

Everyday a different holiday brochure comes in the mail or newspaper or in the inbox. Each year the quality goes up and if the quality is not high, even though the product maybe wonderful, questions would arise. The magazines come at this time of the year because the reality is although people can shop 7 days a week, 24 hours a day, the majority of shopping is done now or the retail stores make the bulk of their profits in the holiday season. During the holiday season, the generosity of people to one another allows the consumer society to function.

Linking to dividend producing stocks – if you own a retail stock or two, one of your chores is to ensure you visit the retail establishment you own. When you go, do you see lots of shoppers carrying bags? are they spending money at your investment or do you need to do further research because you sense something is not as good as it was. You may need to do research because it your area it is not great, but in other areas where  retail locations are located things maybe doing very well. If you own a retail investment, it is a great time to go shopping to check out your investments and ask the same questions management asks – how is it doing? who is it appealing to? are they reaching their target market? could they do better?  The answers lead to other questions and a conclusion.

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