At the end of January, Amazon reported on its quarter and if you examined the US part of the report you would smile, because Amazon continues to outperform. When you looked at Amazon there are different parts of the company and shipping the boxes is not the biggest.

Amazon Prime which people pay subscription fees to have free shipping and access to various Amazon platforms saw fees climb 25% to $4 billion. Those fees are paid every year which translates in $4 billion in cash flow for Amazon.

Amazon is very good at shipping, and over the years it has become the shipping channel for third parties, an example is Nike. They ship through Amazon, more than half of the products sold on Amazon came from third parties. (This is similar to department stores or grocery stores – selling other companies goods). The companies do all the work to push the sales including advertising on Amazon. Eventually margins can rise.

Amazon is involved in the cloud and has the largest market share, Microsoft is second.

Amazon sells ads and compares with Google and Facebook for leadership in marketing and selling ads. The third parties and others pay for high placement in Amazon’s search results.

Away from the US, India is Amazon’s second biggest market but they are having problems with the government’s new regulations.

According to the article from Reuters, net sales for the 4th quarter rose 19.7% to $72.38 billion and beat analyst’s estimates. In North America sales were up 18.3% to $44.12 billion.

Linking to dividend paying stocks, Amazon continues to be a dominant force and if you buy the shares you expect to buy growth. Typically in the retail markets, the first quarter of the year is slower than the last quarter of the year, although over the years because of their logistical advantage Amazon has increased margins or make more money. Amazon had a good quarter, if you own the stock you should keep it, because as Amazon continues to do things well, because of Amazon Prime, shipping for 3rd parties, the cloud and its advertising, revenues over the year should be stable and growing.

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

In a recent opinion piece Frederick Vettese former chief actuary at Morneau Sheppell and author of Retirement Income for Life: Getting More Without Saving More, asked for the past half century for pension funds the go to asset mix has be 60-40 or 60% in stocks and 40% in fixed income. Investment professionals will tell you that long term success in investing is all about the asset mix. It is therefore important to get that right.

Mr. Vettese compared two portfolios and to see how they would have done in the past 20 years.

Stocks to Bonds Mix %                   Worst Case             Medium Case         Best Case

Scenario %              Scenario %             Scenario %

60-40 mix                                          3.1                                5.6                          8.3

70-30 mix                                          3.1                                 5.9                          9.0

One would have thought that the 60-40 mix would have been better than the 70-30 mix in the worst case and not as good in the best case. The results for Mr. Vettese is 70-30 mix is something to seriously consider (Bridgewater Associates has a 80-20 ratio).

Linking to dividend paying stocks, a number of years ago, my parents had a bank allocation model for seniors and it was heavily orientated towards fixed income. Unfortunately the results in a very low interest rate environment meant low returns and the asset mix was changed to allowed for more growth at low risk. Much of the growth came from dividend stocks and index funds – the dividend stocks only invested in companies which pay dividends and index funds toss out the losers. Over the long run invested for different reasons lead to higher returns with low risk.

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

In Washington, for 35 days they allowed 800,000 people to work without pay and 500,000 contractors not to be paid as there was a partial shutdown. President Trump and his Cabinet tried to justify the actions by suggesting the economy was still good and would continue to do well because the number of government workers represented a small fraction of the workforce. It might have been true, but during the shutdown consumer spending in general was slower although to be fair, it generally is slower after the Christmas season.

If you look to Wall Street, what are fund managers doing with consumer stocks? are they buying them or selling them? David Randall of Reuters called around to some fund managers and they were selling consumer stocks. Steve Chiavarone, a portfolio manager at Federated Investors said the market is treating the event as a hurricane, where you know there will be an economic impact but you try to discount any hit to the data because you know there will be some catch up.

Shawn Kravetz, Chief Investment Officer of Esplanade Capital said he expected consumer stocks such as Walmart and dollar store chains such as Dollar Tree to benefit as workers traded down to more value oriented chains. Life is about cash flow.

Eric Marshall of Hodges Capital Management said he is underweight in restaurant stocks because the combined government shutdown and slowing economic growth.

Linking to dividend paying stocks, life is often good until something changes, in this case it was a government shutdown which has no apparent result except to make people suffer. Governments seemingly have their own agenda rather than working with companies, but when you see government try to rationalize bad decisions, ask yourself would you invest in the sector or find alternatives?

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

In England, when the month turns to April the date will change and technically the United Kingdom will be out of the European Common Market or the Brexit will be in force. There are proponents on both sides and for the most part, the average person believes no much will change. There will be a truth to the matter, but what will change is investment decisions. In an article in late January Paul Waldie reported on discussions with business leaders. Part of the job of the leader is to allocate resources in the future.

In North America the people at GM recently announced closure of 14 auto plants to better position the company. If GM will do that in its backyard, what do you think manufacturing companies are thinking. For example, Airbus is owned by the Europeans with headquarters in France. Due to the ownership, there are plants and sourcing for aircraft parts across Europe. In England, Airbus CEO Tom Enders noted on its website if there is no deal, different allocation of resources will take place. He said please do not listen to the no side, although we have huge plants, they will not always be there.

Sony has decided to move its European headquarters from London to Amsterdam; freight company P&O announced plans to shift registration of its 6 English Channel ferries from UK to Cyprus in order to keep its financial operations inside the EU. In April, Honda, Jaguar Land Rover, and Ford will shut down for 3 weeks to evaluate what is happening or how the rules have changed. In an survey about manufacturers, most said they will spend less money on investments as they wait and see.

The issue is no one really knows what they want or do no want, except something will happen in April.

Linking to dividend paying stocks, most of these companies tend to love stability in the on going operations of the company. Yes they plan for some disruption but relative to the whole operations the disruption is a small point. With Brexit, given the strength of London for so many years, many companies have operations in England. Do they change, what are the advantages? disadvantages? If some of your investments have operations in Europe ask what are they doing about Brexit?

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

In the US, the biggest single game which brings millions of people together is the Super Bowl. It is one of the few remaining events which pushes up TV ratings, brings people together – most of whom are not regular viewers which translates into the highest rates for TV advertising. The game was on Feb 3 between the New England Patriots and LA Rams (it should have been New Orleans Saints but that is something fans will take a little longer to let go). The advertising is $5 million for a 30 second spot. Did the ads make you want to and actually buy something?

Scott Clayton of TSI Network examined some of the Super Bowl advertisers who pay the fees for the advertising.

His company awards points to a dividend payer based on key factors:

1 point for 5 years of continuous dividend payments, 2 points for than 5 years

2 points if it has raised the payment in the past 5 years

1 point for management’s commitment to dividends

1 point for operating in non-cyclical industries

1 point for limited exposure to foreign currency rates and freedom from political interference

2 points for a strong balance sheet, including manageable debt and adequate cash

1 point if the company is a leader in its industry

Ratings

10-12 points the most secure dividends

7-9    above average sustainability to pay dividends

4-6   average

less than 4  below average sustainability

Company            Rating                    Points    Div Yield      Recent Price    1 Yr Total  %

Procter & Gamble        Highest                   10              3.1                  94.80            6.5

Colgate Palmolive      Above Average         9               2.7                  62.35           -18.9

Kraft Heinz                 Above Average         9               5.3                   47.28          -41.4

Toyota ADR                Above Average        8                2.5                122.47             -12.1

Kellogg                        Above Average         8               3.8                  59.13              -11.7

Pepsi                            Above Average         7              3.4                  110.50            -8.7

Anheuser- Busch ADR Above Average      7              1.8                    74.08            -35.5

Intuit                           Above Average         7              0.9                    212.24          26.0

Henkel AG ADR          Above Average        7              1.6                      23.29         -27.2

 

Linking to dividend paying stocks, there are two takeaways, it is good to have some sort of rating system so one you can avoid companies and also determine if your company is in the same range no matter the economic climate. The second take away is not every dividend  company goes up in value every year, the prices go up and down however because they have a dividend and can pay it for years on end, the prices of the stocks will raise to a higher multiple. There are reasons why prices go down and up, but if you buy with a primary reason to buy the dividend in the longer term you will achieve higher wealth.

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

 

Continuing with the oil industry, in late January John Kemp of Reuters wrote an article about oil prices. What is your outlook for the world’s economy? It is expected oil prices will be influenced by the health of the global economy. Demand first, second is the US shale production growth, US sanctions on one country or the other, the politics of Venezuela will have an effect but it is secondary to the global demand.

The global economy is not as vibrant as it was last year or there is slowdown, to what we will find out in the coming months. Much will depend on the US and China – their talks over tariffs.

US Shale output was up 2 million barrels in 2018, the demand for the oil is less and there is overproduction of gasoline. Will the companies produce less, depends where the price of oil goes.

OPEC has plans to cut production by 1.2 million barrels to prevent too much supply. They might have to cut more depends on the supply.

The US has pledged to tighten sanctions on Iran’s oil exports. The first phase left generous gaps to customers in Asia. Will the waivers be as generous this year?

Linking to dividend paying stocks, when your company does not have a monopoly or have monopoly like conditions, it is important to look at the macro supply and demand. In the oil industry people will still drive their vehicles and heat their homes, so there is a demand for the product but how much? one person saving on their energy costs is a good thing, if everyone does it the supply is affected. If the company can make money on lower raw materials so much the better. Then you can examine cash flow to ensure how safe are your dividends.

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

In the northeast and across the country we are in the middle of winter. Typically that means colder temperature and more demand for heating – gas, electric, and oil or if you are fortunate maybe wood. The good news for the environment in general is because of energy conservation we are in a global glut of gasoline. In an article by Stephanie Kelly, Henning Gloystein, and Ahmad Ghaddar of Reuters there are record inventories in Asia, America and Europe.

In the US market in late January gasoline margins were $5.70 a barrel, the lowest seasonally since 2009, the laws of supply and demand are there is weak demand and excess supply.

In terms of supply, in the US there was 259.6 million barrels the highest level on  record since the Energy Department began to collect such data in 1990.

Overproduction of gasoline is also a function of the surge in US shale oil output, the oil tends to be light and sweet in its quality resulting in a high yield of distillate fuels such as gasoline.

The good news for the oversupply problem is all refineries go through the refinery maintenance program where the refineries are shut down to be cleaned up. The experts are expecting either 2019 or 2020 to be slower growth in the world’s economy which means demand will stay lower. Perhaps as electric vehicles become the standard a family buys, demand will continue to fall.

Linking to dividend paying stocks, all industries are dependent on the supply and demand curve. In the case of gasoline as vehicles achieve higher fleet mileage, they use less gasoline; as there is a beginning to be a shift towards electric cars they vehicles uses less gasoline. What may be wonderful on the macro level to save the environment, may not be great for the industry. It does take time to shift but watch the supply and demand curve and try to buy the quality companies first.

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

At the turn of year, many organizations forecast what the economy will look like and thus affect policy decisions throughout the year. In an article by Leika Kihara and Silvia Aloisi of Reuters reported the IMF or International Monetary Fund cuts its world economic growth forecasts for 2019. The year 2020 may not be much better. Part of the reason is China’s growth is slowing, no one really knows how much, but there are signs it is slowing. In addition Brexit does not help growth as what happens to the UK?

After 2 years of solid expansion, the world economy is growing more slowly than expected and risks are rising, IMF managing director Christine Lagarde said. It does not mean a recession, but expected slowdowns. Expect trade tensions, rising US interest rates, dollar appreciation, capital outflows and volatile oil prices to continue to make the news and affect risks.

Linking to dividend paying stocks, whenever there is a slowdown of economic growth, there is a flight towards the consistently profitable stocks which pay dividends. The classic example is an utility – as long as people use electricity and pay their bills, the utility will highly likely earn a profit and pay dividends. There are other companies which have a near monopoly, do your homework, and when the stock price is down buy them as prices return to normal.

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

Similar to many people around the world, some of my entertainment dollars has found its way into the Disney coffers. It some ways it is hard not to. From movies to theme parts to TV to merchandising to anything and all things Disney. The company was founded by Walt Disney and over the years many people have written about the company, one such author was Marc Elliot who wrote Walt Disney – Hollywood’s Dark Prince published by Carol Publishing Group, NY, 1993.

The great thing about company founders is their driven abilities which makes other people less than happy with them. Walt Disney was never a great animator, his talent was wonderful story telling and getting maximum production for his staff. He was often a big picture person, while his brother looked after the administration and finances of the company. Similar to many startups, there were many times when people thought the expenses outweighed the revenues.

Over time, Walt made and people thought of Disney as a one man show; for a time it was and what Walt thought about, the company did or did not do. Before there was TV, people went to the movies and all towns and cities had their share of movie theaters. Disney made short films for the movies and eventually did full length movies, which could be shown and if the public liked it, be released again and again without the actors earning fees. It was a great business, as long as the public liked the movies. As a control person, with the advent of TV, Walt was reluctant to give away too much and thus moved from ABC to NBC and eventually cable with the Disney shows.

Linking to dividend paying stocks, in the book, Walt Disney is not the perfect uncle the public saw him as, but had many demons and likely was not the nicest person on the block. In all family companies, succession is important, however as someone who controls things, allowing succession to happen is different than reality. Many dividend companies have seasoned executives which ensures the company continues to run well into the future. It is a terrific time in the history when there is a easy transition into the next group of people who run the organization.

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