President Trump cut corporate taxes from 355 to 21% and cut the cost to bring back money or repatriated cash from outside the US to 15%. For many large companies, this will mean the next two years profits will rise without doing anything differently than they are today. After two years, regular market forces will be of primarily concern. The strategy is how to take advantage of the extra money corporations will receive? Analysts are trying to figure out where the easiest place to park your money and receive the low hanging fruit?

In 2004, 79% of the money went into stock buybacks and 15% went into dividend increases. The numbers will change a bit but many analysts are comfortable with the 70% range of stock buybacks.

Scott Clayton of TSI Network did a chart which helps you to determine where should look:

Company          Mkt Cap   1 Yr Total  Foreign Cash   Foreign Cash   Dividend   Dividend

$bil         Return %   Holding            Per Share         Yiel    Sustainability

P&G                    231.00        8.4                15.0                    5.91                 3.1             Highest

Microsoft           680.6         40.2              132.1                 17.12                 1.9             Highest

Apple                  886.8          46.3             252.3                 49.60                 1.4             Highest

Coca-Cola            197             12.3              24.9                    5.84                 3.2             Above Avg

Cicso Systems      196.2          31.4             69.1                   13.98                2.9             Above Avg

Amgen                  133.1         15.2               38.9                  53.58                2.9           Above Avg

Pepsi                     167.9          15.2               17.5                 12.31                2.7            Above Avg

Oracle                   203.1           26.2              58.5                 14.13               1.6              Above Avg

Gilead Science     102                4.9              32.40               24.80                2.6              Above Avg

Total                                                              $640.7 Billion

Tech giants Apple, Microsoft, Cisco and Oracle have $512 billion in overseas bank accounts. What will they do with the money?

Linking to dividend paying stocks, every once in a while comes a gift or low hanging fruit, if you do not own the tech companies individually, you need to own them in a ETF fund or fund which you like and you can hold because the money is likely to come back into the US and the Boards will have to do something with it. Earning a better than average return with low risk is a great thing.

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

 

 

 

The changes in corporate tax from 35% to 21% plus the decrease of tax on money held outside the US to 15% affect companies differently.  The first part of the changes is companies will report lower earnings, but if they manage to do nothing differently and end up with the same market share, their profits will be up 15%. In the economic texts or basic books about economics that is not taught, because it is a one-off or bonus to the company.

The biggest private sector employer in the US is Wal-mart and most people have visited and shopped there for 90% of Americans live within 10 miles of one of the 4,700 stores.  It is hard not to shop there. In mid January, Wal-mart as reported by Nandita Rose of Reuters Wal-mart is raising the minimum wage in the stores. Wal-Mart employs 2.2 million people globally with more than 1.5 million in the US and global revenue was nearly $500 billion.

Their explanation for the increase was due to the tax code changes, but it reality it is because there is a tight market for low wage workers. Wal-Mart has traditionally paid the bulk of its workers (in the store) at the lowest rate mandated by the state. Initially people apply to work there, but because it hard to meet the bills, Wal-Mart has a high turnover of people. One method to keep people is raise the pay. If someone is at the lowest rate, they likely have another job and once that other job offers more hours, the lower wage company suffers. Edward Jones analyst Brian Yarborough said, given how low unemployment is, Wal-Mart was expected to hike wages, the tax bill made it easier.

Retailers in general have one of the highest effective rates because most of their operations are within the US. It should be noted with 4,700 stores, Wal-Mart constantly adjusts their stores and recently closed 63 Sam’s Clubs.  Wal-Mart is expected to save billions from the tax cut.

Linking to dividend paying stocks, while we all hope the company is a good citizen both from a corporate point of view and paying their employees, Wal-Mart has traditionally been a better company to own than work for. It is a place where many shop for low prices – many of the products come from China (and the President does not seem to connect the trade imbalance with Wal-Mart bringing in manufactured goods).  The model for Wal-Mart because it has and continues to work is something to be studied and learned from but do not buy the platitudes of how it values its workers.

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

 

If you are reasonably normal person, you will like snacks. Sometimes you eat them too much or think you do, but they often seem to go with events or watching TV to make it better. Recently was in the library and pick up a book about A Canadian Food History guide to Snacks written by Janis Thiessen published by the University of Manitoba Press, Winnipeg, Manitoba, 2017. Similar to many people who read the book, most of the snacks discussed were never eaten but listing to older people they remember old snacks they use to eat. Not sure if generation X will remember the difference between the Mars bar or the Hershey’s bar but many years ago there were regional snack makers.

In the book, the author included both the food history and the labor history – what was it like to work there? How were the products made and sold? In reality, although the industry is dominated by giant corporations who recently have been buying the natural food snack the industry has not changed. The distribution systems have changed – the history was there were more shops and the sales representative job was not just to show product but also teach how to display and strengthen the individual store. There are many stores which still exist but most of them are now chain convenience stores. The old days most of the stores were independent and could make a choice of whether to carry a product or not. Many of us now go into chain grocery stores to do most of our grocery shopping which changes the distribution channels and methods.

In the book, many og the companies have disappeared partly because of competition, partly because to stay in business a profit must be made and partly because the larger companies have more clout and sometimes they will source their products through 3rd party companies and sometimes they will buy manufacturing plants to service their needs. The  companies still must make a profit to stay in business.

Linking to dividend paying stocks, as people we all need to eat and every once in while somebody cooks a little better than everybody else. The idea forms either to stay small and local or expand to regional or national levels. The expansion takes different skill sets and different expectations. In also means different forms of competition, typically as a dividend buyer we tend to favor established companies – the big ones which have many advantages before them and their job is to execute. It is great if you have memories of different services, but ask yourself did they make money?

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

In an article written by John Quain of the New York Times News Service the electric bike is beginning to replace cars in some European countries. Last year electric cars sold 1.15 million vehicles or 1% of total vehicle sales, however e-bikes sold 35 million units.

E-bikes are often sold for less than a $1,000, their batteries can be removed and charged in less than 3 hours and manufacturers have shifted the from motors attached to the hub of the rear wheel to the more efficient center-drive motors in the crankshaft, this improves the center of gravity and handling. For the e-bike the rider selects which type of assistance they want or sits on the bike and let the motor do the work for you. In large urban cities – the biker riders for food delivery often use e-bikes.

Linking to dividend paying stocks, while most of the manufactures are smaller size, there is a growing demand and eventually consolidation will come to the group. This is an opportunity for you to visit bike shops, find out which are good ones and look at the manufacturers for investment opportunities.

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

 

If you believe in Global Warming, then you understand or partially understand the new normal for insurance companies. If you do not believe, then when the head of Munich Reinsurance Corporate Climate Centre which monitors climate-change risks says we are in a new normal, then you have to wonder was 2017 an exceptional year or a normal year? If it was an exceptional year, then insurance companies should be expected to pay out less in 2018. If you believe Mr. Rauch’s comments of a new normal, then it is time to consider insurance companies and how much can they pay? In an article by Tom Sims and Alexander Huebner of Reuters noted in a report by German reinsurer Munich Re said last year’s disaster was the 2nd worst in history after 2011. Munich Re believes global warming is having an affect.

Reinsurers are in the business of insuring insurance and are experts in managing risks and rarely get caught off guard. The issue in the business is increases in coverage prices are running at prices less than expected. There is still strong competition, but if this is the new normal double digit price increases are expected at some point.

Linking to dividend paying stocks, we all believe we are trying to do the right thing but maybe it is not enough. We throw things to be recycled because landfill prices have increased, but it seems China has been taking most of North America’s recycling and they maybe wanting less of it. If disasters are the new normal, then greater revenues are going to be needed to prevent and lessen the impact of the disasters. You may want to insure your investments help slow down Global Warming.

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

As an investor, it is important to know how the company you are investing in makes money. After you determine that you can then see how will different scenarios affect the stock price. In Bloomberg News columnist Shira Ovide examined Facebook. In 2017 Facebook did very well, revenue was up, it generated 46 cents of operating profit of each dollar of revenue and the stock price was up over 50%.

Facebook is the internet’s best combination of quickly increasing sales, fertile profit, large market share in a valuable category and potential future growth from fresh areas.

But, and there usually is a but, all may not be as well as it seems – it is easy to imagine the company’s big opportunities becoming burdens. For example, Facebook makes money by selling ads. The growth of ad revenue was linked to the news feed Facebook users see and sometimes click on. The company’s Finance chief said ad volume was becoming less important and revenue growth would be increasingly driven by the company’s ability to extract higher prices for the ads it sells.

When powerful companies lean on price increases to keep growing, it typically means they are running out of natural growth potential. If they do that, they are no longer a growth company but a more mature one. Growth companies trade a different multiples than mature ones or the stock price will not likely grow by 50% again in one year.

Facebook’s volume of advertising is increasing more slowly because the company made a shift in thinking to slow the number of ads which go into the news feeds. Facebook also is moving in web videos. It takes longer to watch a video than to see an ad on news feeds.

Linking to dividend paying stocks, understanding the business models allows you to decide if the multiple is worth buying at or waiting for a downturn. In the case of Facebook, millions use the service and more will continue to do so, but if you are deciding between Alphabet (Google), Microsoft and Facebook then making a projection into the future helps you pick the stock at the price you are willing to pay.

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

One of the most important aspect of living is earning an income, for most of the population we leave our formal high school schooling (if you are older think about the personal finance course you had – likely very few if any) our dreams and aspirations are to gain income (job or start a business) to live the lifestyle we believe we should be doing. There is nothing wrong with our dreams – our economy is based on it. Unfortunately many people become skilled in earning a living but not in spending the money they earn. This is great of marketers, sellers of stuff and givers of credit. It is not so great for family finances and relationships. What are some advice?

1. Live off 80% or 90% of your after tax income. The suggestion was 80% but it generally takes a few years or 90% is more realistic. However you get paid – weekly, bi-weekly or monthly and you can only spend 80% of what you make on living. This includes rent or mortgage including the bills – hydro, heat, water, etc. car including payments and operating the vehicle, and food – consumed at home and outside. The other stuff you buy. If you can only spend 80% that usually means some where along the lines you will have to say no to things. If you have not saved for it, you can not buy it. Think of your parents or grandparents before credit cards and easy credit was available.
2. Know your cash flow and live off it.
3. Credit cards are a wonderful additional to your life – if you can not pay the balance off each month, then you can not afford to buy. Wait. Credit card companies (MasterCard and Visa stock are up this year) make their money off of the interest people pay. At 18% plus interest doubles in 4 years. (interest rate divide by 72) if someone pays the minimum. If you buy on credit, you are paying more for what you have bought. Remember if you are carrying an outstanding balance on a credit card by paying it off, you save money.
4. Everyone needs an emergency savings account of $1,000. If you dip into the account, your task the next month is to put the money back. After you have the $1,000 savings account, then you save for the next items in your life.
5. Ideally, you will have money to invest, which is good. Think of methods to use compound interest rates for you, rather than against you. The magic of compound interest rates is by doing a very little your money over time gets bigger and bigger and bigger…. this allows you to have many options in your life.
6. Paying lower fees saves you money unless you get a higher return than the lower fee. In you look at an ETF which has a low fee of 1% or less and it makes the same return as an active managed fund which pays a fee of 2.5% or more, then by buying the lower fee, you made more money for yourself.
7. Buying a house – ideally you will buy what you need and not be too influenced by your neighbors. If you your neighbors go away on vacations twice a year (not necessarily to see family) you will want to do the same thing. What you do not know is they maybe in debt to do it. If you neighbors are renovating their kitchen you may want to do it – even if you really do not need to.

 

Linking to dividend paying stocks, the great thing about them is due to the dividend you get compound interest working for you along with buying a stock which has a good opportunity to move higher. The reason is to pay the dividend on a consistent level the company has to be profitable and profitable stocks trade at higher multiples than non profitable stocks as well as if the market goes down, profitable stocks come back faster. In addition, one of the rules of investing is try not to lose money, if a profitable company becomes less profitable, you know it is time to find alternatives.

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

If you own a vehicle, even though you may not shopping to buy one there is always some interest in what are the steps to ensure you get a good deal.  On You Tube there are many videos offering advice and one of them offered 6 steps in buying a vehicle.

1. Before you go to the dealership, go to the bank to gain financing. The auto companies will finance you, but if you go to the bank prior to going to the dealership you will know if what they are offering is good and you can go with the least expensive to you.
2. Use the internet to do your homework about the vehicles you are interested in. What is a good price? If you are fortunate enough to be near two dealerships of the same vehicle ask them both to see what they will do for you.
3. All dealerships have the monthly or weekly payment for you. As a consumer you want the lowest payment possible, however as the payment goes lower the length of the contract goes longer and you pay more in interest. You always want to negotiate on price not payment.
4. If you have a trade in, bring it in last. Talk about a second vehicle – you are not interested in trading it in yet. The reason is the dealer should have a reasonable idea what he can sell your vehicle for. In the discussions they can discount one and increase the price of the other – you think you are getting a deal but it is not. If you have locked in the price of the new, then you talk about the trade in and there are many websites which give you approximate value of your vehicle.
5. The dealership has a number of methods of making additional money from you, 99% of the time, you can get it done if you really want it done less expensively some where else. Leave the add ons till later.
6. Another method the dealer can make money is by offering warranties which you pay for. Do you really need them? The answer is generally no.

Linking to dividend paying stocks, car and truck dealerships have a variety of methods to make money from the purchaser. They are not all meant to be money grabs but the necessity of them can be limited, if you understand how the dealership makes its money. Ideally you want them to make something to stay in business, but not at your expense. When you are investing in a company, try to understand how the company makes its revenues and then you can tell whether it is doing ok or really well. Processes count.

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

 

As the year ends, most people will watch at least one movie for entertainment. Likely you will watch more than one whether it is on cable TV, Netflix, You Tube or borrow from the local library. All industries look forward to the new year with projects and in the movie industry – the big distributors know which movies are expected to come out during the year. If you are a big movie fan, you can see which ones you are interested in and then ask how much money will they make?

The lists are published and you can begin to examine how the movie factors into the company’s revenues. How much money will the company make and how will that affect their stock? If you are looking forward to particular story lines – if you love the story line and the trailers you can make a decision on the outlook for the movie.

Linking to dividend paying stocks, similar to all large organizations one product success will have an affect on the bottom line, but most large companies are diversified. In the movie case for example Marvel is owned by Disney, but Disney has many franchises and they want all of them to do well. Will a movie move the stock price. a little, but the franchise and broadening will. A diversified company tends to make a profit every year and as long as it is making money and paying dividends, it can be a hold.

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