In the northeast, some of the power that is used comes from north of the border or Canada. Quebec brings hydro from the rivers that flow into James Bay and from the Churchill River or Churchill Falls in Newfoundland. In 1969, the people developing Churchill Falls needed Hydro Quebec’s to sell the energy, they needed Hydro Quebec’s credit to pay for any cost overruns so they signed a fixed contract to last until 2041. In the 1970’s OPEC raised the price of oil which made electricity a viable alternative and since then the price of electricity has risen. The Province of Quebec or Quebec Hydro depends on the difference between the fixed costs and the price paid by the citizens of New York and Boston and people in between. The Province of Newfoundland has been going to court to be released from the fixed contract and be able to sell the hydro to Quebec Hydro for more money.

Recently the highest court in Canada made a decision the fixed contract stays until 2041 because the people who signed the contract were not a group that was considered to be weak or vulnerable in a negotiation. Yes times have changed but a contract is a contract if people have been fair and reasonable during negotiations. Although Hydro Quebec has gained an extra $26 billion, if it was not for Hydro Quebec guarantee the building would not have taken place.

Linking to dividend paying stocks, there are many and will be many examples of a larger company offering assistance and credit to a smaller company, but the key is if the larger company did not offer the likelihood of the project going forth was remote. Times change but who knew? Often the bigger companies are dividend companies because they have a long time frame and can see the potential advantages if even customers use the product. In the case of the hydro plant, the alternative had to change – oil and gas to make electricity. When that changed the utilities need alternatives and looked to Hydro Quebec. We do not know, but larger companies have more options than smaller ones.

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

 

The biggest buyers of stocks are coming back, it is not the institutions but companies buying back their own stock. Stan Choe of the Associated Press wrote about the ebbs and flows of stock backbacks.

Business were holding back on repurchases because they were in one of their blackout periods for buybacks, a regular occurrence leading up to the release of their quarterly results.

Buybacks are huge in this market, partly because of the record profits companies have been making thanks to lower tax bills. It is expected buybacks will reach $ 1 trillion this year. Last year the number was closer to $500 billion.

In the financial services, analysts expect to see Bank of America, Citigroup and Wells Fargo as the most aggressive buyers.

Buybacks provide support for stock prices or limits the decrease, as well they enhance the EPS or earnings per share. When a company makes a $100 profit, if there was a 100 shareholders the EPS would be $1 per share. If the company buys back 50 shares the EPS jumps to $2 per share and the price of the share tends to increase as it trades at normal times EPS of its industry. In this example if the answer is 15 times earnings then the stock would move from 15 (15 x 1) to 30 (15 x 2).

Linking to dividend paying stocks, there are cycles and normal actions that happen on the market, for example when companies can and can not buyback shares. Patterns and cycles help make easy money for you.

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

We are all bias, which make lists from the investment banking houses interesting to note. Business writers often see investment bankers recommendations and David Berman wrote about Goldman picks. Goldman Sachs complied a list of US companies within the S&P 500 that have strong balance sheets, stable sales, growing earnings per share, high return on equities and a track record of mild sell offs. The companies have high gross profit margins and can pass along costs to customers.

Using a scale of 0 to 100, Goldman gave O’Reilly Automotive Inc a retailer of auto parts and tools for the do-it-yourself and professional installer markets. The company has 5.190 stores in 47 states and generated a profit of $366 million in the 3rd quarter. The same day sales per store increased 3.9% and the company is looking to open another 200 stores.

While O’Reilly received 94, Mastercard and VISA received 92, the average was 81 and 52 for the entire S&P 500.

Morgan Stanley also likes O’Reilly because the Do it yourself market is less discretionary, less promotional, and competitive pricing is generally benign.

The stock was down 5% in October, but is up 36% in 2018 to $320 area.

Linking to dividend paying stocks, there are opportunities in every sector, which makes doing your homework important. Most of us tend to look at 2 or 3 sectors because we pay attention to those sectors, but ensure you are looking past them, there are diamonds in the rough.

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

In the North east and for that matter anything over the Mason Dixon line, a consideration is winter. Most of love being outdoors, although our work takes indoors, while at home we will let the light shine in our homes. Unfortunately the weather patterns at this time of the year means winter is coming. Those of us that live in the northeast, know one way to save money is to ensure your home is relatively secure around the windows where heat loss occurs. When electricity was considered cheap, few people were concerned given homes were built with seemingly little instulation. As the price of heating moved up, it is expensive to redo a home so in the meantime we use insulating film.

The plastic goes over patio door and windows to help keep out the winter winds and keep the warm air generated by the furnance inside. There are a number of other things to do in addition to the insulating film for example use of caulking, insulation and air tight windows and doors. Similar to many things in life, there are potential solutions, which one  you choose is up to you for they all work to one degree or another.

Linking to dividend paying stocks, in the cycles of the weather, there are some companies which do better or should do better depending on the time of the year, given a reasonably normal course of weather events. For utiltiies, there will be more residential demand in the winter and less in the spring and fall and more in the hot summer days where air conditioning of some sort is needed. In your investing, there are cycles and it makes it easier to regularly invest if the dividends come into your account then you can reinvest in what you have or buy something on your wish list. The use of the dividends ensures you have the time element of patience.

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

In the world of mining giants, BHP Billiton PLC is one of the biggest and on November 1st announced it was going to return to shareholders $10.4 billion. The money will come in the form of a special dividend – cash to existing shareholders and buying back outstanding shares.

The money came from the sale of its US shale business to BP PLC.

According to Sonali Paul of Reuters the announcement was greeted with cheers however there are critics. The cheers like the actions, however it says the company does not see opportunities to use some of the cash in other operations. The cheers come from those who saw miners buy a peak prices and now those assets are still worth lower values.

BHP’s Chief Executive Andrew Mackenzie noted BHP in the past 2 years has returned $21 Billion to shareholders. BHP trades on the Australian and British stock exchanges and the buyback applies to the Australian exchange. For institutional investors there are tax benefits to the Australian exchange over the British exchange.

Linking to dividend paying stocks, if you like miners, BHP is worth examining, if you buy before November 19 you will receive money for your shares which lowers the cost of your acquisition. With the company buying shares, this means the EPS will be lower and tend to increase to where it was before the announcement which means the shares should trade higher. No wonder investors are cheering.

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

At the end of October, IBM announced it was paying $34 billion for the software company Red Hat based in Raleigh, North Carolina. An article by Liana Baker and Greg Roumeliotis of Reuters, IBM’s reason for the purchase was to diversify its technology hardware and consulting business into higher margin products and services.

IBM faces slowing software sales and less demand for its mainframe servers, with the purchase of Red Hat IBM will become the world’s No 1 hybrid cloud provider.

Red Hat uses Linux which is an alternative to software made by Microsoft. Red Hat charges fees to corporate customers for custom features, maintenance and support. The purchase also shows how older companies such as IBM are turning to deal making to gain scale to fend off competition in cloud computing. The competition in cloud computing are Amazon, Alphabet and Microsoft.

To pay for the purchase, IBM will not purchase back shares in 2020 and 2021.

Linking to dividend paying stocks, one of the reasons dividend paying companies remain dividend paying is profits allow companies to buy successful companies with high margins or are profitable. As long as the subsidiary remains profitable, it adds to the company and the larger company folds it into the many products and services it offers.

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

If you watch TV and many people do, the most popular shows for very good reasons are coming from Netflix. Those popular shows have encouraged 6 million subscribers around the global to pay for Netflix to increase their total number of subscribers to over 130 million people.

This growth is why the stock has been on a tear and the competition of Disney, Fox, AT&T and Time Warner, Comcast, Amazon, Apple, Google to increase their own spending on TV and video. As a consumer, it is a wonderful time to be a consumer.

As an investor, Jeff Sommer of the New York Times News Service asks it Netflix worth the price of the shares. In many ways you maybe an owner because Netflix is part of the FAANG group – Facebook, Amazon, Apple, Netflix and Google (which trades as Alphabet). Many indexes and funds own the FAANG group and have profited from it,  Netflix poses a difficult problem for investors – the movies and TV shows people love cost millions. To fuel the expansion, Netflix has been spending faster than the cash comes in or it relies on junk-rated debt. The company expects this to continue until 2020 or beyond at that time Netflix will not need to borrow money to pay its bills and profit will grow.

Not everyone believes in the forecasts, New York University professor Aswath Damodaran (check his videos on You Tube and read his blog) believes the business model seems unsustainable. Professor Damodaran posted a valuation model for Netflix based on the discounted cash flow approach. The Professor believes although the shares trade around $300, they are worth $177.

Professor Damodaran believes for Netflix to continue it has to grow, to grow it has to maintain its high costs to produce quality videos and TV shows. Netflix spent $11.7 billion on new content; total revenue was $14.7 billion which left $3.2 billion to pay for marketing and operating costs. The company borrowed $2 billion on top of the $8.3 billion it already owes in the form of bonds.

Another analyst Michael Nathanson an analyst at MoffettNathanson estimated the stock was worth $210. Michael Pachter, managing director of research at Wedbush Securities believes $150 is more realistic.

There are others who believe in Netflix and the price has fallen from $400 to $300 believe it is a good time to buy.

Linking to dividend paying stocks, if you ask people in your circle they will likely know of Netflix and could be a subscriber. Netflix is valuable because it has 130 million subscribers. How price sensitive are they? What would make them not renew? they are questions that help you determine if the critics are correct. The competition is always the competition, most of us can only watch one show at a time and there is great competition for our viewing eyes. If you do not own directly, perhaps it is good time to see how the $300 barrier will be tested. Does the stock go up or down? As a dividend buyer, you have time to wait.

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

In the last two weeks of October the markets went down, and while there is no precise reason, Stan Choe of the Associated Press writes for a long time, investors did not care if the stock was cheap or expensive, what mattered was it growing?

If the answer was yes, then higher prices. because investors were willing to pay higher prices for growth.

Suddenly, every thing investors learned in investing 101 – price earning ratios, what is a value stock was back in vogue and value stocks have fallen less than growth stocks.

When Amazon and Google parent Alphabet report strong earnings but not as high as analysts had expected, the stocks went down.

To show how the ratios were working in the Russell 300 Growth Index  which includes Facebook, Visa and Home Depot, investors were willing to pay 29 times earnings or for every dollar the company made, they paid 29 times for one share.

In the Russell 300 Value Index the ratio was a more modest 16.46 times earnings.

As the Federal Reserve raises rates, stocks are not the only option which is why bonds look more attractive than risker stock investments.

Linking to dividend paying stocks, it is important to remember the reason why you are buying them is for the dividend. Eventually investors will gravitate to the better dividend companies because they are making profits. Shares in companies which make profits will over the long time increase in value. The dividends plus the increase in stock price will make a good return on your investment.

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

Many investors are biased towards large businesses and for the most part as companies merge and grow to dominate the business, we tend to believe because of the resources behind it, they can generally make reasonably good decisions. Then along comes some foolish thinking that the company makes worse. If you were to place small rocks on the ground and put a small layer of dirt on it, then begin to pile garbage do you believe the run off from the garbage or leachate would go through the soil, through the rocks and into the land and water beside the rocks? That is generally why a dump particularly a mega dump needs to be on a strong clay based ground, placing a dump on limestone is foolish. To make a mega dump on limestone will mean the runoff of the stuff we are throw in the garbage will make its way into the rivers and streams around the dump. All mega dumps leak, the question is how much?

The above situation is the book Fighting Dirty by Poh-Gek Forkert published by Between the Lines, Toronto, 2017. The book is subtitled How a Small Community took on Big Trash. The writer was an advisor to the group fighting a small dump which became a regional dump which became a megadump. On the other side is the company Waste Management aided by the government. If you are in one of these fights, the book is worth reading.

Most of us believe for the most part, while people working for the government have a bias, they generally are on the side of what is known as the public interest. Companies have ideas, implement them badly and the government goes to the worst offenders and tries to change their ways to not be a bad corporate neighbor. It turned out in this story the government helped facilitate the bad decisions of Waste Management.

If a small organization wishes to take on a large corporate concern, besides people’s expertise, they will need to do much fundraising to offset the company’s ability to hire consultants who say it could be or there may be a risk, but it is limited risk. The other aspect is this fight took 10 years, that is a lot of time to volunteer to fight on one issue. On the company side never under estimate the people in the rural area – it may take some time for them to get up to speed, but when the basic decision can be seen as good and bad, they will win.

Linking to dividend paying stocks, when we buy shares we favor management and the business it is in. In the case of Waste Management, we all throw out garbage, it needs to go somewhere and we trust the company does the right thing with it. It this particular case, the dump was enlarged because the company owned land, the foundation was the problem. A matter of fact, after the company lost, they applied for a new dump beside the old one – the foundation was still the problem and the application was turned down. All companies make good and bad decisions, but doubling down on a bad one is still a bad decision and shareholders should advise management.

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