Dividend investors like pipelines in general, because once a pipeline is in place, there is very little competition and the pipeline companies will use their influence with the regulators to ensure a competing pipelines are not built. All the reasons that were put forth by the opposition to the pipeline will be enhanced with a second pipeline,

In Europe, most of Europe receives its gas from Russia which is both good and bad. It is good because Russia is next door, it is bad because Russia has used its clout of being the provider of gas to influence government direction to what it considers helpful to it.

In an article by David McHugh and Vladimir Isachenkov of the Associated Press, Russia and Germany want the pipeline, but Ukraine, Poland and the US have not signed off. The US has not signed off because Russia has about 100,000 troops on the border with Ukraine doing training.

German spokesperson Wolfgang Buechner said Nord Stream 2 is an undertaking of a private business that is largely complete and that regulatory approval has no political dimension.

The pipeline would double the amount of gas Gazprom sends to Germany. The pipeline would go under the Baltic Sea and help bypass Poland and Ukraine which would save fees. Gazprom says the pipeline would add to the long term reliable supply and be affordable.

The regulators in Germany says they can only regulate a company based in Germany which means Gazprom is forming a company. At the present time Nord Stream 2 is based in Switzerland.

Linking to dividend paying stocks, once the pipeline is in place, investors like pipelines because they have a semi-monopoly and regulators tend to raise prices every year. This means the company will have guaranteed revenues the ability to make a profit and pay dividends. Similar to pipelines around the world, the gaining of political approval is the hard part, the easier part is the building and operation of the pipeline.

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

When COVID hit the economy and things were shut down, everyone suffered and many traditions were stopped. However this past year, people wanted to maintain their traditions because they could. However trying to maintain traditions and companies having enough product sometimes are two different things.

In an article by P.J. Huffstutter and Marcelo Teixeira of Reuters confectionary companies were having problems meeting demand. The largest wholesaler of candy canes is a company based in Denver called Hammond’s. According to Andrew Schuman, Hammond’s CEO, the company is not taking extra business because they can not keep up. This year labor costs are up 30%, yet staffing is a problem, normally a 250 person crew is down 100 people.

Cincinnati based Doscher’s Candy Co received an order from Sam’s Club and Doscher was able to produce 70% of the order.

Total seasonal confectionary sales are up 20% over last year for the 5 year period ending December 5 according to the National Confectioners Association.

Spangler Candy Cane, the largest US candy maker ran an extra shift this fall to meet demand. Usually candy canes are made with cherry flavor, the past year some have been made with raspberry.

The US imports about 25% of its annual sugar needs but Hurrican Ida went through Louisiana the 2md largest sugar cane producing state. The world’s largest producer of sugar are Brazil and Thailand and they have been hit with smaller than expected revenues.

Linking to dividend paying stocks, most of us follow some sort of tradition. Whether its is decorating for the holidays, what we eat for holidays and when we do them in large number numerous industries benefit. When you are investing, it is wonderful if you use the product or service, however consider do other people do what you do? If the answer is typically yes, then are people doing what you do. From there it is possible to find good industries which have sales on a regular basis to make profits to pay you dividends.

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

Most of us enjoy music of one sort or another and when the music is enjoyed across many age groups it becomes valuable. The music is valuable in itself on how it makes an individual feel, sometimes a song marks a year or a generation, and the more popular a song is, the more opportunities to do more with it. The song can be used for advertising and when it is used along those lines it generates sizable royalties which means controlling the ownership of music can be very profitable.

In an article by Ben Sisario of New York Times News Service, Bruce Springsteen sold his recordings and songwriting catalogue to Sony Music for $550 million. The amount is likely the highest ever paid for the work of one musician.

According to Barry M Massarsky, an economist who specializes in calculating the value of music catalogues on behalf of investors, last year more than 300 valuations for $6.5 billion was done.

Prior to streaming services such as Spotify, Apple Music and You Tube the music industry was considered a dying business, now it is doing very well. Investors have poured in billions as they see music as a safe commodity – an investment with predictable rates of return and relatively low risk.

According to MRC Data, a tracking service that powers the Billboard charts, 66% of all music consumption is for material greater than 18 months old.

in the 1950’s and 60’s, musicians had great voices but did not own the recordings and many did not do well financially. In the 1970’s and beyond there was a push to obtain more power and leverage and to own their own work. Stars such as Taylor Swift are passionate about owning their music.

Linking to dividend paying stocks, when you hear music, the music brings you to a particular mood – hopefully a happy one. If you are happy then the music company can use the music in other areas of your life. When you hear the music, you may not buy right away, but you will listen to the advertising message and the royalties from the music flow in. A number of years ago, Disney used to advertise coming out of the vault for a short time – buy your copy now. Music and movies often work hand in hand and investors see those recurring revenues.

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

In the coming need to do homework, it is often good to read books about finance because they offer a summary and a perspective that you will not likely receive by reading the newspapers and blog posts. Recently picked up a book called King of Capital by David Carey and John Morris published by Crown Business, NY, 2012.

Leveraged buyouts are based around cash flow. The cash flow determines how much debt a company can afford to take on and thus what a buyer can afford to pay. Cash flow is the deal maker’s raw “show me the money” measure – the amount that remains after operating expenses are paid.

One way that buyout firms make profits is to use the cash flow to pay down the buyout debt. In the early day’s of industry, the models were formulated with the aim to pay every dollar of debt within 5 to 7 years. This was an average time of holding the shares and when the debt is repaid, the buyout firm reaped the benefits of the sale. A second way to generate a gain is to boost cash flow, through revenue increases, cost cuts or a combination. If a company has repaid its debts, the owners can reborrow against its cash flow and pay its owners a dividend. This is known as dividend recapitalization.

Sometimes private equity plays an important role in the health of a company. In the case of Safeway, when KKR bought it, KKR discovered Safeway’s executives had never scrutinized how it used its capital. whether its investments were paying off, or where it made money and lost money. KKR set to work on analyzing Safeway’s real estate to determine which properties were so marginal as grocery stores that the company was better off disposing of them. Often times in large organizations, they have many assets but not all them make sense where the industry is expected to head. They made sense looking backwards. In the Safeway example, KKR eventually brought the number of stores from 2,400 to 1,400 reducing the size from $20 billion in sales to $14 billion. However cash flow rose 250%, the company reduced its debt and planned expansion in profitable markets. KKR eventually made more than 50 times the money they put in over the 14 years of ownership.

There are wonderful stories about regional companies or medium sized companies growing to become national companies and they are many examples. However Blackstone has 3 rules. In a cyclical industry do not overpay. You never know when the top will be. Second if you buy a medium sized business do not have ambitious turnarounds. Third, if an investment calls for reengineering operations, do not have a Blackstone manufactured plan. Develop a plan with seasoned executives and consultants knowledgeable enough to judge if the plan will fly.

Leverage buyouts work well when the system works well, if there is a healthy IPO market; corporations strategic plans are fluid; access to bank loans and credit is low; institutional money wants to be involved in the alternative investments; ideally prices are rising. There are many variables and most will not always be in sync which is the reason smaller investors – capital preservation and not losing your money should be high on the list.

Linking to dividend paying stocks, there is always much to learn from reading about leveraged buyout firms but remember everything they touch does not make money. There are many variables and leverage buyout firms worry about risk management, however they need to risk more otherwise their investors will go elsewhere. As an investor, you can decide what not to do.

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

In the coming need to do homework, it is often good to read books about finance because they offer a summary and a perspective that you will not likely receive by reading the newspapers and blog posts. Recently picked up a book called King of Capital by David Carey and John Morris published by Crown Business, NY, 2012.

In the book, the authors go through many deals some made money. lots of money 6 times the investment and some lost money and when investing one of the objectives is not to lose money, however it happens does often. It is important to examine which companies investment lose money and learn from them however it is almost impossible not to have losers in your portfolio. The hope of the new year is to limit the losses and have more winners.

In the book, private equity investors examine multiple companies and eventually pick some, sometimes it is because the company is medium sized and under the right strategies could grow through acquisitions to new markets. A wonderful example is Gerresheimer AG, a German packaging company. The company was owned by a conglomerate by the name of Viag AG which did not spend a lot of time on it. Blackstone repositioned the company into the health care area where there were fewer competition but very loyal customers. The jars which drugs come in, partly because in the health care area, price is not the biggest concern – safety is. If safety is the biggest concern and the company can ensure it surpasses health regulations, customers stay loyal. The company made acquisitions of health care companies and over a few years, Blackstone was able to bring the enhanced company public. It was a success but it outlines the possibilities that can happen.

On the other side of the coin are the many failures which Blackstone invest in, having done their research and due diligence but something changed afterwards. The economy moved downwards so projections were not reached; the expected change in consumers did not change until later or something needed to happen first. For example, when the internet came eventually people moved from telephone companies to internet companies, but not right away. There was an expectation that change would happen, can happen, but win is always tricky answer. In the meantime, companies were loaded up on debt, debt payments could not be paid, companies are restructured debt becomes equity and original investors have lower holdings or almost no holdings. Sometimes even when projecting for higher debt payments, you do not know when the economy moves against your investment.

Linking to dividend paying companies, often these companies even though at low interest rates debt can be used in favor of the company, they tend not to go to much into debt. There is a balance and managing debt is something investors need to worry about. Does the company have the correct debt? does it have balloon payments in the future? how does the company benefit from the debt? Often times a company will go a stray if debt is not strictly controlled, but if debt is not used the leverage buyout companies will examine a company and project if they increased the debt money could be paid to shareholders. Only when you examine the transaction looking backwards do you see when debt is good and not good. Investors always need to do their homework.

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

In the coming need to do homework, it is often good to read books about finance because they offer a summary and a perspective that you will not likely receive by reading the newspapers and blog posts. Recently picked up a book called King of Capital by David Carey and John Morris published by Crown Business, NY, 2012.

The book is about private equity and Blackstone run by Steve Schwarzman. On Wall Street there are multiple private equity firms including KKR and a host of other firms managing billions of dollars. They are what is known as alternative investments, when a private equity firm buys a company, attempts to make it profitable and hopefully in a few years issue an IPO which allows the private equity firm to sell its holdings over the next couple of years. The advantage is making 3 or 4 or more times the amount of money that was spent to buy the company. This happens because there are cycles in the economy and there are ideas for expansion and growth that were not being used before the buyout. When KKK did the first couple of deals they made a lot of money, and in Wall Street if someone makes a lot of money with seemingly little risk, there will be a multiple of players who wish to do the same thing. The difference is some will be able to raise funds. The first years it was hard to raise funds because only a few players were active in the alternative investment area, however once wonderful returns are made, more holders of large funds made the transition to own alternative investments. In the world of capital the new players were the pension funds and the wonderful thing about pension funds is they always have new money to invest, while at the same time worried about their pension obligations.

In the book, the authors discuss various deals that Blackstone has made over the years, and while some were wonderfully profitable for the firm, there were others that failed and over the years Blackstone had to change how they make their decision to invest. One method they adopted the pitch has to be done to a wide variety of people and someone has to play devil’s advocate to ensure the one in the hundred possibilities that could happen is given consideration in the decision. It does not mean all decisions will be profitable, many will not and that is the important take away. Even with the brightest minds in the room, for a company to turnaround and make consistent profits it is not a sure thing. Many times the firm loses money because the economy is not static, it is dynamic and what works in one area of the economy does not work in another.

Linking to dividend paying stocks, when you buy these companies you are buying them because of their abilities to generate profits over the years. Sometimes they could generate more than normal, but they have consistently generated profits and can pay dividends. There is something wonderful about that and it is not as easy as it might seem to be. The company’s history is filled with failures, but there are successes and they produce consistent profits.

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

We all know more and more machines are using computer chips and that makes the machines better for the operations they do. However, we often forget because computer chips are more and more common when there is a supply shortage, individuals will suffer.

In an article by Peter Goodman of the New York Times News Service, there is a case of a person who has sleep apnea which means he frequently stops breathing while sleeping. He uses a CPAP or continuous positive airway pressure machine which can pump air into his body while sleeping and the patient receives a good night sleep. One of the components of the CPAP is a computer chip and every once in a while, the machine needs new computer chips.

Computer chips are in short supply, refer to the auto companies, the chips are in short supply to machines. The President of the ResMed, Michael Farrell, for his clients is on a mission to receive more chips. Mr. Farrell has spent his time trying to find out where the supply system is down and trying to gain more chips for his company. The issue is his company is a small user of the chips and the big companies such as auto companies and cellular communications companies are large users. Who gets the chips. In Mr. Farrell’s case, he has come to understand it is not that chip makers can ramp up production because it takes 2 years of lead time and billions of dollars. In addition, in North America, Europe medical devices manufacturers are governed by strict safety standards that limit their flexibility in adapting to trouble.

Mr. Farrell dived into supply system problems and as he worked backwards, he discovered 5 levels up the Taiwanese manufacturer of silicon wafers had no inventory. That meant the company that combines the wafers and circuitry could not produce more components and the company that takes combines the output into clusters could not make more of them. The maker of the circuit board could not buy clusters to send to ResMed factories to go into machines.

Linking to dividend paying stocks, all companies have supply systems and when they work on time and controlling inventory costs, they work wonderfully. When they do not work, people ask why not do more in house? however the answer is not always a straight forward as one may think it is, unless a company has billions of dollars to do what they need to do. In your investments, how does the supply system work best and when it is down?

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

Happy New Year

As the calendar has turned in is a good idea to look to those who are optimistic for the future. There are considerable challenges in the airline industry, in the author’s part of the country – the warm weather of the south is desirable. However with the pandemic, do you fly south or stay home, as companies continue with hybrid models – it is possible to work from southern climates.

In an article by Tim Hepher, Jamie Freed and Eric M Johnson of Reuters, some of the airlines are looking to buy more energy efficient planes for their fleets. When the severity of the spread of the Delta and Omicron and the next one lessens, it is expected more people will want to fly or travel to other parts of the country and the world. When the holiday public moving then business travel will tend to pick up and we will approach something that was considered normal before the pandemic.

Singapore Airlines, Air France – KLM, and Qantas are purchasing energy efficient planes for the second half of the decade or 2025.

Airbus and Boeing are sold out of the benchmark medium haul models until 2025.

Two large airline purchases are Air Lease Corp and Indigo Partners (which owns a number of airlines) ordered 300 jets at the Dubai Airshow. In the airline industry one of the variable costs is fuel, the more fuel efficient a plane is, the less fuel the plane uses and costs can be lowered all over things being equal or near equal.

Linking to dividend paying stocks, as investors you are looking to the future expecting the company to be profitable to pay dividends for you to invest or spend. Being optimistic for the future is a good thing, ensure you have metrics to see if the glass is half empty but start the new year optimistic.

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

We all know that the world of autos is changing from gasoline engines to electric engines, we know that something the tipping point happens but what happens to the gasoline engine vehicles and since most of us drive gasoline vehicles what should we drive? Those are big questions because the price of the electric vehicles is not less or equal to the gasoline engine vehicles, it is more, yet many people would like to buy electric. If you invest in an auto company – GM, Ford, Chrysler or BMW, Mercedes, Toyota, Honda, or Tesla what does those companies do.

In an article by Tim Kelly of Reuters, Toyota Motor Corp, which is the world’s largest car maker is committing $90.4 billion to electrify its automobiles by 2030. If all goes well, Toyota will have total sales of 1/3 of its lineup in electric.

Toyota Chief Executive Akio Toyoda said his company was planning a multipronged carbon reduction strategy that includes hybrid cars and hydrogen-powered vehicles. He said we want to give people a choice and we will wait until we understand where the market is going.

Toyota is building a $1.29 billion battery plant in North Carolina to open in 2025.

It is important to note electric vehicles have fewer parts than gasoline vehicles which means as the world shifts and people start buying electric, supply systems have to shift and jobs in the auto sector will go down. In Japan. there are 5.5 million auto jobs that will go down significantly.

Linking to dividend paying stocks, in some industries what we want and what we buy can be different. We may want an electric car, but the sticker price says we buy a gasoline car or truck. Vehicle makers have to meet demand of what we actually buy, not what we want, it is an interesting industry to be in when the public and government want something but the public is not quite buying yet. Auto companies will need to having this balancing act between want and need, actual sales and desired sales, profits and doing their part on climate change, what will the the correct approach?

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