Large profitable companies often remain large and profitable because they constantly buy smaller companies and integrate them into the larger company. It is the nature of the beast, when companies have excess cash flow they can reinvest in the company, buy back stock, increase their dividend or wait for opportunities to buy another company.

In an article by Andrew Willis of the Globe and Mail, a software company called Constellation Software is one of the leading software companies in many niche or specialized markets and is worth over $40 billion. Over the past quarter of a century it has bought over 90 companies. The company specializes in vertical market software. For example 10,000 libraries around the world use a firm called Softlink International, Constellation owns it.

Constellation was looking to do more acquisitions of over $300 million, however they found they had a problem. The company tracked every major software acquisition over the past 6 years which is between 40 and 70 companies a year. Most of these companies were sold by investment bankers at an auction, but Constellation was not being invited to the auction. The company’s research showed they were being asked to bid on just 16% of the sales.

The reason is investment bankers viewed Constellation as tied to high returns for the acquisitions or hurdle rate. The bankers believed private equity funds were likely to pay a higher price and went to them as they can and did pay premium prices. (if the premium price is paid, commissions to the investment bankers are higher). The reason why private equity firms pay higher prices is the expectations of the company. The funds hope to bring the company to an initial public offering (IPO) within 5 years and when the company trades on the public markets the private equity can sell its holdings and do the process all over again. In contrast, Constellation makes it money by making the company better over the long time. (think about if you went to a charity auction and bid on something, are you going to use it, keep it, donate it to something else or sell it?)

Constellation wrote in their annual report, which investment bankers read, they were dropping its hurdle rate, accepting a lower return on the $1 billion they generate each year. In the past, Constellation was expecting to generate $30 in cash for every $100 invested or Return on Invested Capital (ROIC) on 30%.

To maintain the higher cash margins it can invested, the company stopped making special dividends, but can keep expanding using a 20% ROIC. It also spun out a subsidiary as a public company marking the first time it had gone through the process.

Linking to dividend paying stocks, one of the reasons for owning dividend paying stocks is to allocate the dividends when they come in during the month or the excess cash. As dividend owners you have time and patience or the ability to be disciplined in what you do with the cash. As the total gets larger you have more options and that is a good thing. Time and patience are on your side to buy what you want rather than what is hot. There are many shareholder meetings at this time of the year, maybe you want to know what is your company’ s expected ROIC?

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

Investing in the stock market, particularly in the last few months hopefully has given you gains and that is part of the reason you invest. Once you have made gains, then you want to ensure that you do not lose money and one of the best methods is to invest in consistently profit large companies which no matter the economic cycle will make profits. When they make profits and pay dividends you have choices what to do with the dividends and that is a good choice.

Which companies to look for, Anthony Menard of Inovestor Asset Management has some ideas: his criteria was:

market cap higher than $10 billion

EPI of 2 or higher, the return on capital divided by the cost of capital

Relative EPI of 0.6 or higher – the ratio uses the return on capital adjusted for its market capitalization divided by the cost of capital

Positive 3 month percentage change in the economic value added (EVA) metric. This metric gives investors a sense of how much value the stock is adding for shareholders and is arrived at by taking the net operating profit after tax and subtracting the cost of capital.

One year sales growth higher than 2% or higher growth than inflation.

Company Mkt Cap EPI Rel 3M EVA 1 Yr Sales ROC P/E Div Recent

US $Bil EPI Grth % Grth % % Yield Price

Clorox 23.990 4.5 0.9 27.6 22.7 25.3 20.0 2.3 190.73

Progressive Corp 57.790 4.4 1.2 98.2 9.3 38.8 10.2 0.4 98.76

AutoZone 32.960 3.7 0.7 10.3 10.9 29.3 19.0 0.0 1495.84

Vertex Pharm 56.780 3.6 0.6 18.0 50.3 28.7 21.3 0.0 219.39

Regeneron Phama 53.840 3.2 0.9 63.4 8.1 23.5 16.5 0.0 502.60

Bio-Rad Lab 18.570 2.7 0.6 30.2 10.1 19.4 4.8 0.0 600.87

Dollar General 51.860 2.6 0.8 12.9 21.6 16.2 20.4 0.8 216.74

General Mills 37.390 2.4 1.3 46.2 11.1 12.1 14.9 3.3 61.30

Target Corp 103.990 2.3 0.6 32.3 19.8 16.7 24.1 1.3 208.55

PerkinElmer 14.920 2.0 0.7 80.5 31.2 16.2 20.5 0.2 133.16

Linking to dividend paying stocks, part of investing is not to lose money, which means try to invest the bulk of your investments in dividend paying companies. There will be growth as stock prices go up, but if the market is sideways you will still be earning dividends. Whether you use the data above, the most important aspect is to do your homework and many platforms offer the data so you do not have to calculate everything, you can. However there should be some ratios you look to for comparison and have an idea of when to ensure your portfolio needs to be managed through diversification. When do you sell? As a dividend investor you tend to hold for a longer period of time, but when do you sell or seek alternatives?

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

Every few years, a new investment manager rises from the ranks of many investment managers to gain prominence among retail investors. The investment manager typically has a winning record on the market, looks to continue and is among the many people who are regularly interviewed on the MSNBC and other shows. In the past it was Wall Street Week, but the shows come and go.

One of the most prominent investment managers is Cathie Wood of Ark Research and she focuses on growth stocks. Telsa’s stock has increased the profile of Ark.

In an article by Thyagaraju Adinarayan of Reuters, Cathie Wood’s Ark funds bought $246 million worth of Coinbase shares which went public on the Nasdaq Stock Exchange. Coinbase is a cryptocurrency similar to Bitcoin.

To buy the shares, Ark sold some Tesla shares. Recently, Ms. Wood said Telsa could move from $700 to $3,000 in 2025. The Ark fund sold $178 million in Tesla shares but it remains the biggest holding, which could easily be linked to portfolio management. When a stock becomes too big of a holding for a fund, it has choices to hold or sell, otherwise the portfolio is too dependent on the one stock. (if the stock continues to go up, few are concerned; if the stock dips, then they will be redemptions in the fund because the growth is slowing).

The Ark fund saw its assets under administration rise from $1.86 billion in 2019 to $22 billion in March of 2021.

Linking to dividend paying stocks, whether you should put money in cryptocurrency or not is up to you, however given some stocks trade on the exchanges if you own an index fund tied to the exchange the stock could factor into the price of the index. With portfolio management, you should ensure that if you do own index funds, they are not the same thing as your individual stocks otherwise there is very little diversification. While it is true index funds go up over the long term because they have rules to change the makeup of the index, if you have to sell or when it comes to sell, there likely will be fluctuation. Invest over the long term and they will have increased.

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

The wonderful aspect about companies competing in mass markets is there is never only one method to accomplish the task. There are a variety of reasons why companies do what they do and be examining different strategies, as an investor you can determine which one works for you the investor and you the consumer.

In an article by Norihiko Shirouzu of Reuters, he compared the strategies of GM and Toyota in relationship to the biggest market in the world for electric vehicles – China. GM and Toyota compete as the number one auto vehicle company in the world.

In North America, the world’s most successful hybird car is made by Toyota the Prius.

In China, there is competition at the high end from Tesla, the low end Mini EV and in the mid range VW and Renault and Chinese companies Nio and Xpeng.

The Mini EV is a no-frills vehicle made a joint venture of GM and SAIC and Wuling. This small vehicle costs less than $5,000. The Mini EV has cut corners that would not be allowed in the US and Europe for example it only has one air bag (for the driver), the car has an anti-lock braking system but no stability control technology which can cause tipping at high speeds. The vehicle is designed to be a commuter friendly in city traffic. The Mini EV is selling 100,000 a quarter. It should be noted, the Mini EV generates green car credits which helps offset the production of internal combustion engines.

Toyota has focused on the mid sized market and SUV, it makes more money, but is taking steps to produce a low cost EV vehicle recently teaming up with BYD – a Chinese battery and automaker in research and development.

Linking to dividend paying stocks, sales are good but how much money does the company make is the key. If a company goes low cost, then it has to do great volumes. If the company does lower volumes, then the margins have to be higher to make profits. There is never one method, but many combinations to take advantage of government incentives and what the market buys.

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

Last month a firm from Hong Kong run by Bill Wang for family money lost a ton of money for itself and the prime brokers who were helping it. Goldman Sachs, Morgan Stanley, Credit Suisse and others lost money. What can be learnt from the collapse? Larry MacDonald at mcolumn@yahoo.com has some ideas:

1. Small investors can compete against institutional and professional investors.

Archegos Capital had a portfolio of $10 billion leveraged to $50 billion to 8 stocks. The firm received a margin call, prices went down and the brokers sold the positions. The brokers were able to absorb the losses, which is a good thing for everyone.

2. In every regulations, some big investors or whales, will find a method to get around the regulations. In this case, as a family office, the regulations or reporting to authorities are less than hedge funds and security dealers. This was compounded by Archegos not owning the stock directly but through swaps or derivatives to increase leverage. The stocks were held by the security dealers.

3. The Archegos’s portfolio was based on a short squeeze. Stocks were heavily shorted and experience rapid gains and then the market collapsed. Carson Block of Muddy Waters said it appears Archegos went long because they thought they could squeeze the stocks, but there was no fundamental reason for the action to happen over a long period of time. Otherwords, once the price increased, Archegos should have sold to lock in capital gains.

4. Former Prime Minister of Britain Winston Churchill once said, “Never let a good crisis go to waste” The forced selling of the 8 stocks may have created opportunities for value investors. The 3 top companies wre Tencent Music Entertainment Group, Baidu, and ViacomCBS.

Linking to dividend paying stocks, the last takeway is something that all dividend buyers should do. Every day there are millions of people trying to figure out the best company and make money. As dividend buyers, you do not have to invest everyday, you can wait till your dividends built up, but when they do then you need to do your homework to see which opportunities you can invest in. There will always be companies shares going up and down, you will need to watch the down ones and what level they become good investments. The aspect you have is the time can be today or tomorrow or the next week. This is what homework is for to be able to invest at the correct price for you, then reap the rewards.

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

Many dividend companies have operations outside the state where their headquarters is, even outside the country where they reside or outside the US. They have operations which have been built up over the years and the current management likely inherited the operations. From a corporate perspective, as long as the operations are profitable, the company benefits. A number of years ago, when the Soviet Union broke up, many companies moved into the new countries because there were previously markets which could not be reached.

In the world, things change and sometimes they seem to stay the same. In the case of the Soviet Union, the countries changed and became independent. Russia which is blessed with natural resources, uses the resources to influence and dominate the independent government. If a company has operations in the former Soviet Union analyzing what Russia is trying to do or is doing is a key to continuing success.

In an article by Tom Arnold, Natalia Zinets, and Karin Strohecker of Reuters, Russia has built its military near the Ukraine border. It could be something or it could be nothing but it has an affect.

Aberdeen Standard Investments, with over $640 billion in assets under management, reduced some ruble exposure but remains exposed to Russian and Ukraine bonds. At the moment, Viktor Szabo, portfolio manager said we know that occupying and rebuilding Donbass would come at an extremely high cost for Russia in terms of financials, in terms of lives and in terms of sanctions.

JPMorgan moved to market weight from overweight on Russian local bonds and the ruble. Trim Capital portfolio manager Peter Kisler said he started to build a short position on Russia.

Jupiter Asset Management sold its holdings of Ukraine’s GDP warrants when the news begin to surface. Ukraine is expected to pay $40 million in May based on 2019 GDP growth of 3.2%.

International fund manager including Jupiter and BlueBay have built up defensive positions. If Russia invaded Ukraine, they would quickly exit the positions.

Linking to dividend paying stocks, diversification can be a wonderful thing as long as there is stability. Once there is less stability the first reaction is begun defensive to protect the capital, if conditions change for the worst exit quickly and be on the sidelines and when stability returns find buying opportunities at lower prices. You can do the same for your investments, ensure most of your investments are in countries that are stable and monitor.

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

In one of the Terminators movie, one of the scientists said a line to the effect, when we discovered the arm we learnt so much to move the bar years ahead. In the movie, the Terminator was trying to destroy the firm because robots took over from humans.

We all have an idea that Artificial Intelligence or AI is going to play a larger role in the corporate life, but how does AI become everywhere. The answer is companies such as Microsoft which is the backbone of corporate America adds it.

In an article by Chavi Mehta and Krystal Hu of Reuters, Microsoft is buying Nuance Communications for $16 billion as it builds out its cloud strategy for health care.

If you have been to a Doctors office, they seem to have a lot of paperwork as opposed to digital solutions. Nuance Communications is helping the medical system become less dependent on paper. Microsoft CEO Satya Nadella said, Nuance provides the AI layer at the health care point of delivery. AI is technology’s most important priority and health care is its more urgent application.

Microsoft is buying Nuance at $56 a share. The company is based in Burlington, Mass and reported revenue of $1.5 billion through operations in 28 countries. It is expected Mark Benjamin will remain the CEO of Nuance and will report to Scott Guthrie, EVP of Cloud and AI at Microsoft.

Linking to dividend paying stocks, the more profitable stocks often buy smaller companies to add muscle to their operations. Ideally, the corporate culture and operations fit with the bigger company to be a success, but time will tell. However, likely Microsoft is buying talent and will find out if the medical system can positioned for more AI sooner than later, to grow revenues.

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

President Biden is counting on the Green New Deal to move the US to less dependence on oil and gas or internal combustion engines as the years go forward. However to allow the transition to happen, building blocks need to be in place. One of the considerations will be the price of battery powered vehicles and one of the building blocks in the vehicle will be the battery. At the moment in Europe one can buy the vehicle and the battery separately, not positive how practical it is, but it is interesting.

In an article by David Shepardson, Hyunjoo Jin, and Heekyong Yang of Reuters, the two biggest South Korean battery makers LG Energy Solutions and SK Innovation agreed to settle disputes over electric-vehicle (EV) battery technologies. The US played a part in the agreement.

The core dispute had threatened the EV plans of Ford, Volkswagen as well as new $2.6 billion plant in Commerce, Georgia for SK Innovation that is key to the growing industry.

The global auto industry is racing to develop EVs and President Biden has proposed spending $174 billion to hike their sales and expand charging infrastructure.

The companies agreed to drop all litigation in the US and South Korea and not to raise any further lawsuits for another 10 years. SK Innovation agreed to pay LG Energy Solutions $1.8 billion this year and next and royalities for 6 years. The US Trade Representative was pleased with the settlements.

Besides the Georgia plant, LG Energy Solutions is building a plant in Ohio and wishes to build a $2.3 billion plant in Tennessee.

Linking to dividend paying stocks, when a company’s values and goals is also the government’s values and goals, the levers of the government can help solve thorny problems. The lawsuit was over 2 years in the making and every year was getting nastier.

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

If you think about the past, resources or commodities around the world have made wealth for people and that can be a very good thing. Where the resources are relative to the more developer countries can be where one can quickly see attitudes change. If the resources are in the more developed countries, environmental concerns are now at the forefront, if you look back at history you will see across the country making resource ghost towns. What happens to the environment and who makes profits or money from the commodities is changing or perhaps finally changing to meet the realities of more citizens.

In article by Niall McGee, Mining Reporter for the Globe and Mail, Barrick Gold Corp has a new partnership agreement with the Papua New Guinea (PNG) for its Porgera gold mine.

PNG will own 51% of the mine up from 5% and Barrick and China’s Zijin Mining Group will own 49% down from 95%. Barrick will be the operator of the mine and front the entire cost of reopening the site.

The theory is part of a loaf is better than no loaf, as the mine is presently shut down. The mine is 5% of Barrick’s portfolio of mines but the grade is rich and it is a relatively low cost operation. The cost is about $985 and with gold trading in the range of $1,740, the mine will generate profits.

The mine has been in operations since 1990 and Barrick became an operator after it bought Placer Dome. The mine was closed after the New Guinea government refused to issue a mining permit saying it was owed $191 million in back taxes. PNG’s President James Marape vowed to the citizens it would seek more lucrative agreements with foreign operators of the country’s resources assets.

Linking to dividend paying stocks, companies in the commodity business for years had a one sided operation with taking the commodities out of the earth, in return for jobs and some economic interests. It has taken many years before the country where the commodity is located has been seen as a partner. In relatively low cost operations, there is still many millions of dollars to be made and spread out to the company and the country where it is operated. When the country operates the mine, often times it assures the company of stability of production and operation and that is a good thing. Attitudes to commodity extraction take years to change, will they as a society we move to move sustainability discussions?

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