According to Reuters the biggest commodities trader and miner on the planet Glencore will pay a dividend of $ 1 billion starting new year or in a couple of days. This is good news going into 2017 for it says Glencore has sold assets and more importantly commodity prices have risen due to demand. Glencore still has plenty of debt $17 billion, it assets sales will be in the $ 6 billion range, but commodity prices have risen. The commodity’s Glencore is involved with include copper, zinc, nickel and coal. The good news for Glencore is prices have risen but not enough for more supply to come onto the market. Glencore had announced forward coal sales for 2016 and 2017 of 55 million tonnes or about half of its annual production. If it had could have waited, the same forwards coal sales would be at $400 million more. (even companies have could of, should have moments.)

Glencore will pay $ billion in 2017 in dividends and afterwards start with $ 1 billion and add 25% of free cash flow from mining which could add another $ 1 billion depending on the performance and commodity prices.

Linking to dividend paying stocks, when the commodity cycle for any company gets on the downturn, that is when your research has to kick in. The research is not to buy the companies, but determine as the commodity cycle changes know which companies to buy. At that point in time your risk reward is the lowest for risk and highest for reward and you can buy low and sell high. It takes willingness to understand the commodity price changes, the markets and patience to choose the best of the breed stocks. Ideally if you can also purchase a stock which can and will pay a dividend in helps to limit downside risk.

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

One of the great things about the stock market is there are a host of methods to try to use to make money on the markets. For most of us, we tend to more lucky than not, as in the case of mergers we already own the stock for different reasons or the company that is doing the buying we own because it pays dividends. The merger arbitrage occurs when one company has made a bid to take over another one with the prey trading well below the price that the suitor has offered. In an article Benj Gallander and Ben Stadelmann of the Contra the Heard Investment Letter examined two  drug retail companies Walgreen Boots Alliance who wishes to buy Rite Aid Corp for $9 a share.

This merger has been on the table for a long time and there are reasons why it is taking so long including the merger between the number one company and the number company three needs to be regulatory approval from Washington. There are issues with competition; overlap of stores and trying to sell them; and debt issues. Another issue is there does not appear to be any other suitors to raise the price. It is entirely possible with a new President elect administration is more favorable to  the deal than the former President so the bid was extended to after the new administration comes in.

The tough part of merger arbitrage is if the deal does not succeed, the price of the stock will fall and generally you are using borrowed money to heighten leverage. If you are going to do arbitrage know what are all the things that can or could go wrong and what will that do to the stock price.

Linking to dividend paying stocks, if the stock market things happen to companies all the time  they have strategic plans and some parts fit better than others. Divisions picked up now no longer fit as well or are as profitable or are not related to senior management as before. If you are going to participate in the merger game doing your homework before investing is the key – what is the upside? and downside? If you not comfortable with the risks it is time to look for alternatives. Companies which pay dividends are always seen as valuable for they generate cash flows.

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

 

If you fill a coin a number of times over the long term the odds will come out 50 -50, we all should now that. There is a computer game which adds a twist that everyone can learn from – Rational Decision-Making under Uncertainty: Observed Betting Patterns on a Biased Coin by Victor  Haghani and Richard Dewey. They authors did an experiment on if you know the heads is going to come up 60% of the time and had $25 to start with – what would the result be? The issue is in the short term how much do you bet on each flip of the coin. In the experiment, 30% lost all their money, but they should have done better. The reason they lost money was the although they knew the long terms odds favored them, the short terms were unknown. The issue is how much money do you risk on each toss, when you have the one period of negative performance do you double down? betting all of your money  hoping you will make it up on the next flip? Some were betting on tails, instead of heads? They were doing what people do in the market place generally do.

The key according to the Kelly criterion which consists of a constant fraction of your bank account. This fraction is tied to your probability of winning. In this the ideal was betting 1/5 of your bankroll of each toss. In the experiment 13 of the 61 did manage to reach the top payout within the 30 minutes.

The writer of the article Ian McGuguan believes the most important lesson the coin toss teaches is the discipline in investing, not the brilliant idea. The discipline to reach a reasonable reward because they did not stick to a simple, consistent strategy that realistically balanced risk and reward.

Linking to dividend paying stocks, the ideal is to bet on a favorable outcome, if you do not know the outcome at least you can pick up dividends. We never know the short term performance of the market, once in a while you can see stocks that are undervalued and should be higher but need to wait till the street sees the market as you do. Since we do not know, you might as well gain insurance on your pick by choosing a stock that pays a dividend and wait till the market increases the P/E ratio.

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

 

 

When the Europeans came to the northeastern part of the US or the New England States region, they came for fishing. The source of their fish for generations was the North Sea but the fish were becoming less and people started travelling further from their homes. News had been reached there was a new and great site, better than the North Sea – the fish were offshore what is now called Georges and Grand Banks. Grand Banks is off the coast of Canada and Georges is off the US. The ocean starts with a beach then goes reasonably shallow for sunlight to get in and then goes deep to what people think of the ocean. Now days, every country has a 200 mile limit around their shores and that is where the fish are larger and grow faster. When people started coming, they were harvesting fish and need the landscape to give them a natural harbor and a place to allow the fish to dry and before being salted to be sent to market in Europe. One such location is Gloucester, Massachusetts which is located northeast of Boston. If you know Cape Cod from the Kennedy’s or the song, go straight as the crow flies across the Bays and you will find Gloucester.

In a book about fishing and the history of Gloucester, Mark Kurlansky titled The Last Fish Tale published by Ballantine Books, NY, 2008 tells the tale of fishing. If you want to see a movie The Perfect Storm with George Clooney gives an idea about fishing and people that go to the sea. It starts with except for the storms – fishing has been a good way to make a living. Fish until the last 30 years were seen as inexhaustible and catches can be made, although the work is and was hard, it was dependable year in and year out. After a couple of years of work, your boat would be paid off and life was seemingly easier as a small business person. From the hard work needed to commercially fish, the way of life was celebrated by those afar and up close. On a clear day, people in Gloucester can see Boston or the towers of the city which makes Gloucester now part of the summer cottage country, but earlier on the attitudes were much different. With their blue collar approach to life and relatively inexpensive real estate artists were attracted to the area and many painters and writers did and still do their work in the Gloucester area.

Linking to dividend paying stocks, the story of Gloucester is the story of fishing from the sending fish to Europe, to people living year around in the community to seemingly improvements in fishing – factory fishing to small business fishing. The issues of sustainable fishing are complex, the costs to fishing rises – boats are more expensive; the season is different; lots of changes happen. In terms of the community of Gloucester it has changed and seemingly adapted to its location but fishing has changed. One can learn much about how communities and industry deal with changes by reading books such as The Last Fish Tale and sometimes your money has to find different alternatives.

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

A few weeks ago, as the bike was going down the road a box was seen on the side of the road, as it was garbage/recycling day, a thought was to kick the box to the curb as the bike went by. Then other thoughts became to appear, if the box was empty and being on the bike, if it was kicked to the curb, that would likely be fine. But what if the box was full? would it cause discomfort or make the bike unstable? Invariably the bike passed the box left untouched for the seemingly next person. Investing can be seen similar to the do you kick the box or not?

For investors who see a solution to moving the box, for conservative investors we tend to want to see tangible proof the box is empty. In this case the box was upside down, but the flaps were out and it was possible to suspect their was nothing in the box, but maybe? maybe not? To verify, the bike would need to be stopped to examine the box and put it with the rest of the recycling.

For the more adventurous investors who see a solution to moving the box, it was seemingly only needs to move to the side and not on the curb or in the box, there was a high probability the box was not full. The risk is maybe the next time the box will have something metal in it and soreness would result from the kick.

One could make a variety of scenarios about whether to touch the box or not and what the result could be?  The idea is what do you think you would do? that is the type of investing you should do.

Linking to dividend paying companies, when you buy a company you know or expect a continuing dividend. If that does not happen or the dividend does not meet expectations you know to either sell or begin the search for alternatives. However, before you bought you should have a reasonably good idea from the analysts and what their opinion is. In the case of the box, doing research to lower the risk return ratio is an easy thing to do.

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

A number of years Warren Buffet wrote about the term equity bond and Larry Sarbit of Sarbit Advisory Services recently revisited the term in the article Hunting for the elusive equity bond in the face of economic uncertainity. What is an equity bond? Mr. Buffet points out bonds pay a predefined amount of money at specific times called coupons. On the maturity date of the bond, a predefined amount of money is returned to the investor. Equites has a maturity date of infinity with varying rates of return over time.

Mr. Buffet points out there is link between the two ideas – an investment is the purchase of assets that are not consumed today but will be used to create wealth. A successful investment is putting a dollar into ownership and receiving more than a dollar back at some time in the future. The important thing is the expectation of the return between a bond and an equity is same.

For an equity investment what is the coupon? In most cases it is nearly impossible to figure out what the coupon will be.

For commodity linked business, the individual company has no control over the price of the commodity which translates into earnings can and do vary year to year.

For retailing companies, there is a small barrier to entry which means you are only as smart as the dumbest competitor. Mr. Buffet says in this situation if a competitor sells at a loss to gain market share, what choice do you have but to match it?

Some industries are seeming more predictable for example cellphone networks, although there will be some churn, contracts will dictate the company’s revenue or there should be free surprises.

There are companies which tend to have a sustainable competitive edge, small required capital inputs over the long term, increasing free cash-flow and good people as managers of the companies. This allows for the investor to have a reasonable accurate estimate of what the range the coupon will be in.

To purchase companies such as this, you have to buy in when they have dips in their stock price for it you buy at the high end and hope, hope is a great thing to have but is not an investment strategy. Purchasing at the low end with reduce the risk of capital loss and you should be better off in the long run.

Linking to dividend paying companies, while the dividend can be seen as a coupon or it helps in holding the company for a long time all the other features of why it is a long term profitable company has to evaluated over the year to ensure you want to continue to hold or it is better to seek alternatives. Looking at the concept of equity bonds will help you

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

 

No matter where you live, eventually a mythical average American will visit a food or retail drug store which makes the sector a defensive industry for any part of the economic sector. To look at the sector, Jean-Didier Lapointe from Stock Pointer with the following criteria:

a minimum market capitalization of $ 1 billion

economic performance index or EPI (return on capital divided by cost of capital). An EPI ratio of 1.0 indicates a company’s capacity to create wealth for its shareholders.

return on capital

one year sales growth

dividend yield

one year and 5 year average annual dividend growth rates

Company                      Mkt Cap       EPI        R/C    1Yr Sales      Div Yield         1 Yr Avg     5 Yr Avg

($ Bil)                         %          Growth           %               Ann Div Growth Rate

Wal-Mart Stores         214.0            2.1        12.4         -0.60             2.9              2.0                 5.9

Caseys Gen Stores           4.4            1.9        13.1         -6.40             0.85            9.0                 9.0

Costco Wholesale         62.4             1.8        13.5           2.60            1.26             12.5               12.6

Kroger                               30.7            1.5         10.7          2.80             1.54              9.10             19.0

Sprouts Farmers Mkt     3.1             1.5         11.3          18.40             n/a               n/a              n/a

Whole Foods Mkt            9.3             1.4        10.4            1.9               1.84              7.7              19.7

CVS Health                      88.7            1.3         10.0          14.4              2.04             22.9            28.3

Sysco Corp                        28.6           1.3           9.3            3.5               2.37                3.3               3.5

Walgreens Boots              87.9         1.2           9.9          13.6               1.84               11.8              n/a

Source: StockPointer

Linking to dividend paying stocks, the great thing about these lists is you have choice and opportunity and if you shop at one of the stores you can see. If they impress you, if you go on what is their busy days to see how much people are buying you can be reasonable confident in your choice. If something is not right, you can look to alternatives. Right now is the lead up to Christmas and this has generally meant more consumer spending – where are those dollars going? When people gather there is generally a food component do you see the carts being filled?

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

 

 

One of the most exciting time to be with any company is the introduction of a new product, the others are when it sells better than expected and it is reported in the financials as outstanding for shareholders. In the commercial airlines there are really two companies that dominate the industry – Boeing and Airbus, if you have flown with more than one airline you likely have flown on one of the planes. Boeing is based out of Chicago but makes its planes near Seattle, Washington and Airbus is owned by a combination of European countries and makes its planes in Toulouse, France. Both companies have a wide variety of businesses but the general public knows them best for their commercial airplanes.

Similar to car makers, we all have our favorites and they make cars for different sizes. In airplanes – there are super jumbos, the mini jumbos, and the commuter aircraft and the Airline Companies want planes in all the categories to satisfy their customers or the general public. For a long time Boeing has a monopoly in the 350 seat planes and now Airbus has built a plane and it is final testing year of testing. Recently Reuters ran an article about the plane. Once a plane has passed its testing, then it can be delivered. Prior to testing the company went to the airlines and asked them what they wanted? and if Airbus produced would they preorder? and reorder? The airlines naturally said we love Boeing but its prices are a little high and we want all these options included less expensive to run, how about 25% less operating costs?. Airbus has come through and in a few years Boeing will offer the same options. In airlines, the developers talk years before something happens, so there is time for each to come up with different options and planes.

Linking to dividend paying stocks, politicians love airplanes because they represent all types of things – progress, engineering jobs, specialized services, well paying jobs so government money flows to aircraft companies, whether they need it or not (there is always a debate) The reality is there is a reason for the monopolies and as an investor you may like the government subsidies or not, but for the good of the country you accept it. Monopolies help keep the risk return ratio low and when investing there are a great thing to be involved with.

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

 

If you are a value investor and we all should be, you are looking for bargains however recently the stock market has gone up and prices are more expensive. Is this a time to continue buying or hold or sell? Only in the future will you know the answer but there is always a relative bargain somewhere. Of course, sometimes it is for a reason. Peter Ashton of Recognia Inc examined large cap companies to see if there were any bargains (given this was published in late November, things may have changed but the process remains the same.

a minimum market capitalization of $5 billion. The idea being the larger the company the less the risk.

price to earnings ratio (P/E) of less than 15

annualized earnings per share (EPS) growth rate of 5% or more

debt to equity of 1.5% or less

5 year historical annualized dividend growth of more than 10%.

Company                                 Mkt Cap       P/E        EPS Growth   Debt to Equity  Div Growth   Div

($ Bil)           est           5 yr his  %          Ratio              5 yr %           Yield

MetLife                                   60.2              11.8              51.9                  0.31                 15.8                2.9

Cisco Systems                      150.2             12.8             14.1                  0.45                 59.9               3.4

Lazard                                         5.3             14.3             65.9                 0.80                  23.4               3.8

Principal Financial               16.6              13.3            14.7                  0.31                   22.4              3.0

Amgen                                    107.4             12.7            15.5                   1.15                   61.7              2.8

Invesco                                       13.0            14.0            19.8                  0.77                  20.1              3.5

Ameriprise Financial             18.0            12.3            16.1                   0.86                  30.9             2.6

Xerox                                            9.4               8.2           10.3                   0.77                  11.2              3.3

Gap                                             10.3               13.9             6.5                   0.68                 18.8              3.6

Western Digital                      17.5               13.1           10.0                   1.22                  26.7             3.3

Source: Recognia

Linking to dividend paying stocks, all these companies are paying dividends and for various reasons are lagging behind their peers and still offer good value. In terms of the risk return ratio, you are protected, if you want to buy the hottest stocks it may not be these ones, however if you dig deeper and understand why these companies will still be profitable next year, then one or two of them might be worthwhile to buy. The cycle suggests as they stay profitable the price earnings ratio will rise to the rest of the market.

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