If you are a dividend investor, one of the sectors you either own or have examined is the utility sector. There are very good reasons which include we all have the need for electricity, the companies have near monopolies, the utility rate board will increase prices by inflation on a regular basis for the companies to earn a profit and pay constant dividends. In the western world, the only times the utility goes down is weather related and we expect the utility to continue to learn lessons and be up and running in a manner of hours. But what if the country is at war?

In an article by Eric Reguly of the Globe and Mail, when Russia invaded Ukraine and the war continues, it was not surprising that Russia targeted the infrastructure of Ukraine in the hopes of turning the people to its side. That has not worked as the Ukraine is more independent than before, but the war goes on. Ukraine’s biggest private power producer DTEK produces about 25% of the country’s electricity mostly from coal plants.

Last year, Russia targeted the coal plants and transmission network, this year the company has been barricading its generating plants and transmission networks. Steel cages have been erected over boilers and compressor units from compressor units to protect them from drones. Sandbags and concrete blocks encircle the generating plants.

The military is bulking up its air defenses near the plants. Dmitriy Sakharuk, the company’s executive director said the where is classified but the goal is to avoid last winter’s disaster where Russia damaged the key assets. The company has 6 coal plants in Ukraine and 2 in Russia occupied territory, along with transmission lines and electricity transformers.

An extensive rebuilding program costing $734 million has raised the capacity to 80%. The program included more domestic production of coal and imported coal from Poland. It also included greater natural gas production to be held in reserve.

Ukraine President Zelensky said that Ukraine is ready to counter attack if the electricity is crippled again.

The company is Ukraine’s largest employer with 55,000 employees and almost 10% are in military service. The company has lost about 1,000 employees to death and injury since the start of the war.

Linking to dividend paying stocks, as investors we expect the utilities to operate like clockwork and meet our demands and expectations. We also are dependent on the utilities to work and most of us cannot imagine what it would be like in war time and that is a very good thing. In wartime very different management is needed and while we all train for crisis situations, the crisis tends to be relative minor in comparison. Most of us never have to worry about bullets being fired at us to do the job and thank goodness for that. Crisis are crisis and we can all learn from how to ensure the company strives and continues to be profitable.

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

When a company becomes large, the rules will change and when the company does what government policies would like to be done, the rules continue to change. One of the rules is when a company cannot pay its debts, the company has to sell assets and become a much smaller company. However if the company is doing the bidding of the government, then the govenment will ensure that it has all the possibilities of a turnaround as can be given.

In an article by Clare Jim and Xie Yu of Reuters, the biggest property developer in China is the Evergrande Group. The company has $300 billion in liabilities, but only $240 billion in assets and at the moment is the poster child of a debt crisis that engulfed China’s property sector.

For the past 30 years, the property sector has been one of the drivers of the economy of China accounting for 25% of the world’s second largest economy. The government through modernizing the country has paid for billions in infrastructure to transform the rural population to the urban centers to live and work as China was the world’s manufacturing hub. The economy is changing and higher prices for housing are not happening as property prices fall.

One of companies which holds bonds is Kirkland Ellis and one of the partners Neil McDonald said the company has been a very clear message by the court that this is the last change to propose a viable restructuring plan that is acceptable to the creditors. The court date is set for December 4.

Linking to dividend paying companies, by their nature and size, the companies often mimic the government of the day because they are doing what the government wants them to do. In the above example, the real estate company has been having debt problems for years, Evergrade defaulted on debts in 2021, but it has taken a long time to go through the system. With every company there are some assets, and some bond creditors will be paid closer to 90 cents on the dollar, with bonds they bought for cents on the dollar. However, the common shareholders will have limited value for the shares will be diluted or more shares issued for bondholders if they believe the underlying values will rise. Outside looking in, when a company controls more than 5% of the market, the government wants to the company to survive in one form or another.

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

When ChatGPT was released to the general public, it instantly became the number one subject and remains a constant for companies. Consider senior executives mentioned the terms AI or artificial intelligence an average of 3.7 times a call with analysts in the second quarter or more than double the year before. AI remains a topic which every company says they will use, but is it effective?

In an article by Sam Sivarajan, it is useful to understand the limits of AI, at least at the moment. A recent Harvard Business Review article puts it: Artificial intelligences are prediction machines. They can tell you the probability it will rain today, but not whether you should bring an umbrella. The umbrella decision requires more than prediction.

The decision requires a judgement, which reflects individual preferences and experiences. When the forecast is 10% rain, some will take an umbrella, and others will not, it comes to personal preferences.

For your investments, you see individual risk tolerances all the time. Some will buy high risk low cost stocks, others will buy dividend paying stocks. The probability of a loss (or gain) from those investments is the same for all investors. Some investors have a preference and tolerance for higher probabilities of loss than others. This is why determining an investor’s risk tolerance is not a straightforward exercise.

In the Major League Baseball World Series won by the Texas Rangers, one of the stars of the Rangers was Jordan Montgomery. Last year he played for the New York Yankees, the Yankees traded him because they did not trust him to win big postseason games.

There are limits to the prediction machine. It does not factor in individual human preferences or experiences. Nor does it account for learning, adapting or adjusting on the fly. In the baseball game the batter and pitcher are not the same in the latter innings as they were in the earlier ones. The prediction machine cannot account for that, yet.

These limits of data and prediction machine can have costly implications for companies and investors. In February, the tech based real estate company Zillow Group Inc, set up its AI to value homes and make cash bids. By November the company stopped doing it because the homes it bought could not be sold for higher prices. The company had to do a $304 million inventory write down. The stock fell and 25% of staff were laid off.

The point is AI will be and is very valuable to analyze reams of data and provide empirically testable conclusions, which save valuable time. But humans should be involved in making the final decisions. because context is important.

Linking to dividend paying stocks, there are some industries and some companies that using AI to value the company should be easy as clockwork, unless the company is doing something illegal. But more stable companies, ensuring they have consistent revenues, their margins have not fallen and they are profitable can be relatively easy. It is the growth companies that an expectation of growth is needed that requires judgement. Generally as an investor you expect the company to be using AI and making better decisions to ensure the company remains competitive and profitable.

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

The time between Thanksgiving and Christmas is traditionally defined as the holiday season for a wide range of actions. Often times people have a choice between meeting at Thanksgiving or Christmas and Thanksgiving works out a little better because of weather conditions, there are fewer of them. The day after Thanksgiving is Black Friday because after meeting the family, they needed something to do and going shopping was on the list. All the above is based on expectations and companies in the retail business will live and die on those expectations.

In an article from Reuters, Amazon believes a jump in 4th quarter revenue and profit boosted by a holiday marketing blitz, faster delivery, and improving outlook for its cloud division. Amazon’s total revenue was $143.1 billion.

Amazon is the world’s largest cloud provider and online retailer. In cloud services it recently invested in Anthropic which makes chatbots. On the retail side, Amazon has reorganized its delivery network to locate goods closer to shoppers, letting it fulfill orders faster than before at less cost. One method Amazon is using is more robots in the warehouse.

Andy Jassy, Amazon’s CEO said its cloud service or AWS continued to stabilize.

AWS brought in revenue of $23.1 billion.

Marketing events help prop up sales. Amazon had a Prime Day during the summer and it brought in its biggest sales ever. Another Prime Day (for those who pay $139 a year for free shipping and other events to be a Prime member) was scheduled for October.

Amazon is expecting holiday revenue to be above $160 billion.

Linking to dividend paying stocks, in the current environment with a possible downturn in the economy, analysts and investors are paying particular attention to expectations and did the company meet or exceed them? if no, the stock falls, if yes, the stock could rally. For a dividend paying investor whether the company beat expectations for growth is secondary to whether it remained profitable. Growth is nice, but being profitable and maintaining margins is much more important. If the company’s profits fall, then it is time to find alternatives, but chances are high the company would have told investors to lower their expectations before releasing the numbers to the public.

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

In every industry, part of the business landscape is the mergers and acquisitions which results in bigger companies. Just because they are bigger does not mean they automatically are successful; the companies still must execute to meet customer demands. As well as the commodity inputs have to remain relatively constant. In high profile mergers, after they have been announced, then it is time to evaluate what is the expectation the mergers will succeed?

In an article by Clifford Krauss of the New York Times News Service, ExxonMobil and Chevron announced mergers of $50 billion each to buy a competitor. Exxon bought Pioneer Natural Resources and Chevron bought Hess Corporation.

Exxon believes the added acreage of Pioneer Natural Resources in the Permian Basin will add significantly to its cash flow. Chevron believes Hess ownership in a well off the coast of Guyana will mean it has significant oil to produce well in 2030’s.

On the other side of the equation is a report by the International Energy Agency which says the demand for oil and gas should peak in 2030 as sales of electric cars and other use of renewable energy surges.

If you add the sales of electric cars, mopeds and bikes, 1 out of every 5 new vehicles sold this year will be battery powered, up from 1 out of every 25 in 2020. Will that be closer to 1 out of every 2 in 2030?

Daniel Yergin who wrote the book The Prize which deals with an earlier mergers in the oil industry, believes consolidation is about giving the companies the scale to be more resilient to meet various priorities at the same time.

Mr. Yergin says oil executives have conflicting signals from Washington, on one hand produce more oil and gas domestically, but not on federal lands and waters. On the other hand, the administration wants the companies to lead in energy transition.

At the moment, oil prices are in the $80 range per barrel. If it stays in that range, the companies make money, if demand falls the price is likely to fall.

When Exxon merged with Mobil, the prices were near the bottom.

For the big American based oil companies, the one thing they are not doing is straying from what they know best. Some of the European based oil companies are investing in non oil and gas production or alternative energy.

Linking to dividend paying stocks, profitable companies often buy other companies and then they have to execute to ensure the reason why they were bought, and market conditions demand they buy the company. The economy goes in cycles and in every cycle, there is plenty of money that is invested in companies that do not execute on their mergers, in hindsight it would have been better to invest in Treasury bills. However, that is only in hindsight. As an investor you can do is evaluate if the merger is good for the next year? 5 years? or should you look for alternatives for the only perfect answer is in hindsight, but we live in the present.

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

Often times when there is a strike or disruption in a company’s normal course of operations, the financial press will outlay some details as a general public you may not know. This helps you enhance your knowledge of the industry and what to focus on if you decide you want to be an investor. An example this year is the UAW or United Auto Workers contract was up with the 3 largest American car manufacturers – GM, Ford and Stellantis or Chrysler. Vehicles still play an important part of the average working family and that makes it newsworthy. Ford and Stellantis have settled and GM is the last one to settle. In the meantime, the union increased its strikes at GM facilities.

In an article by Joseph White of Reuters, the UAW went on strike at GM’s Arlington, Texas factory which builds highly profitable Cadillac Escalades, Chevrolet Suburbans and other large SUVs.

The move to shut down one of GM’s most profitable plants will push the weekly cost of the union’s strike well above the $200 million a week rate GM executives outlined for investors.

GM’s 3rd quarter net income fell 7.3% to $3.06 billion while revenue rose 5.4% to $44.1 billion. The adjusted earnings per share was $2.28 which beat Wall Street expectations and up from $2.25 a year earlier. The buyback of shares helped the earnings per share number.

GM is reworking its EV strategy pulling back a strategy to challenge Tesla’s lead. The Chevrolet Bolt EV will be launched with a lower cost lithium-iron battery. The goal to build 400,000 EVs from 2022 to mid 2024 is cancelled because of lack of buyers. While the company agrees EVs are the solution in the future, it is lobbying Washinton to change the ambitious emissions and fuel economy aimed at pushing EVs to 2/3’s of the US vehicle market by 2032.

Linking to dividend paying stocks, all investors depend on the financial press, although most of the time the financial news in not on the front page. When the news is on the front page, everyone can see and talk about the event, but most do not know the details of the issue. Most of the time in the business side you will be given some details and then you can make some decisions. For example in the above article, the highly profitable Arlington Texas plant. The implication is if that strike goes on for a longer period of time and those SUVs are not sold, GM makes less money. In all likelihood, GM makes money it just makes less money. Ass investor you can wait till the share price falls, and when the strike is over, buy the shares to allow GM to meet the demand for its vehicles and profitability is restored. Patience is needed.

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

For every commodity, there are downsides to extracting the commodity from the earth. A little bit does not matter, but to earn profits a large amount must be done. If we are discussing minerals, earth has to be moved and sorted, fortunately there are huge machines which can do the job. The downside is when the mineral is no longer profitable to be mined, the site is never the same. If the commodity is grown in the earth, additional fertilizers are added to enhance the yield but there will be some runoff into the water collection. Just about everything we do there is some negative effect, sometimes we learn that they can be mitigated. For profitable companies, there is some lawsuit around the corner, some group not liking their operations, and sometimes governments impose sanctions on other governments.

In an article by Mark Trevelyan of Reuters, when Russia invaded Ukraine and still has not left, the western governments imposed sanctions on Russia’s oil and gas industry. At the time, Russian was supplying up to 40% of Europe’s needs. The western governments were hoping the sanctions would mean less revenues for the Russian Treasury and Russian would change their strategy in the war to finding a way to stop it. Russian has not done that, the sanctions remain and Russian had to find other markets for their oil and gas.

Gazprom will supply more gas to Hungary for the winter months and send an additional 600 million cubic meters this year according to TASS news agency quoting Alexei Miller the head of Gazprom.

Russian President Vladimir Putin for the first time in 2023 left Russia and went to China to help negotiate the deal.

Hungary is the only member of the European Union and NATO who has kept friendly ties with Russia.

Mr. Miller said in a TV interview the additional gas supplies to Hungary amounted to 1.3 billion cubic meters of gas.

Linking to dividend paying stocks, in life we all want to have alternatives and sometimes they are forced upon us. For a profitable company as an investor, you want it to have more than one revenue stream to ensure profits remain at a near constant level as the economic cycles go through the economy. Every once in a while stuff happens to people and companies, while one hopes the individuals will find an way to deal with it, the expectations are people in the company will deal with the stuff quicker and more efficiently, if that does not happen, perhaps you should look for alternative companies that deal with stuff better.

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

If you are a normal person, you are interested in real estate, some of it will be residential because you need to live somewhere; some of it will be big commercial buildings because they are big and newsworthy in your community. Real estate development is based on credit and one of the critics best movies, one that comes out every Christmas season is Its a Wonderful Life. The story is George’s works for a Savings and Loan Company and his brother misses a payment. Mr. Potter tries to foreclose. George does not have the money and sinks into despair and thinks the insurance money on his death would solve the problem. He tries to kill himself (but no insurance company would pay on it), is saved by an Angel and sees the good he has done so far in his life. The community rallies around George and the payment is made and the ending is happy. The story about not making a payment and trying to find money to make it is not an unusual story. In real estate, there are multiple stories, it is usually the very large ones make the news.

In an article by Scott Murdoch, Xie Yu and Clare Jim of Reuters, the second largest developer in China is Country Garden. Similar to the largest developer, the second largest company is having problems making payments on its debts including bonds. The difference is when payments are missed for bondholders, they can and do sue to be paid something on the dollar.

Two bondholders have emerged seeking discussions about a potential debt restructuring package with either Moelis or PJT as financial advisors. The group holds about $2 billion of the debt-laden Chinese property developer’s offshore bonds.

Rating agency Moody’s said they would downgrade Country Garden’s corporate family rating if things get worse. The senior unsecured debt is at the lowest end of the scale or C.

The one thing good about developers, particularly large ones is somewhere they have assets such as land to be developed in the future. County Garden’s Australian subsidiary is selling an undeveloped housing plot of land in Melbourne to Singapore’s Fraser Property for $250 million.

Country Garden has $11 billion of outstanding offshore bonds and could trigger one of China’s biggest corporate restructuring.

Country Garden has appointed Houlihan Lokey, China International Capital Corp and law firm Sidley Austin as advisors to examine its capital structure and liquidity position to formulate a solution.

According to Duration Finance. Country Garden’s bonds were selling between 4.39 or 5.33 cents on the dollar.

Linking to dividend paying stocks, access to credit and been able to repay bonds is a fundamental part of your homework to investing in a company. If the company can repay its loans, then the bonds holders will buy more bonds. In the event of bankruptcy, bondholders get paid first, equity is last. It is wonderful to look at big flashing developments, but ask do they bring in rents or revenue to pay back the debts? If yes, then you need to do very little with your investments.

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

Many years ago, the economic texts were simple supply and demand lines using guns or butter as an example. Do you want to produce from guns and less butter or less guns and more butter. Fortunately, since WW II, most people in developed countries have not really have to make that decision, but Russia is increasingly doing so.

In an article by Patrician Cohen of the New York Times News Service, nearly 1/3 of the country’s spending next year or $109 billion will go to the war with Ukraine or in Russian speak the special military operation. If Russia spend money on the war effort, spending for health care, education and infrastructure will go down.

19 months into the war, the Russian economy has proved to be more resilient than most Western governments assumed after imposing heavy sanctions on the Russian economy.

The Russian ruble is now 100 to the US dollar, and inflation is increasing for Russian citizens. The spike in government spending and borrowing has stressed an overheated economy. Interest rates are 13% and food basics are at higher price than a year ago.

Lower standards of living can be uncomfortable even for an authoritarian government, noted Charles Lichfield, deputy director of the Atlantic Council’s Geoeconomics Center.

Linking to dividend paying stocks, with every organization examining the budget will tell you what the priorities are for the organization. What the person says is important and what the budget actually finances can be different. There is an expectation with large profitable companies that what executives say is important is actually funded the way they say. As an investor part of your homework is to confirm this and if you agree, there is little you have to do.

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