In the first of August, Apple reported its earnings and according to Alex Webb of Bloomberg News revenues were very good. The company expects to have sales to be between $49 and $52 billion for July, August and September. The previous quarter Apple sold 41 million phones to have sales of $45.4 billion. A key statistic for anyone owning Apple shares is Apple generates almost 2/3s of its revenues from the iPhone.

The issue with a heavy reliance on iPhones and the higher margins iphones are sold at is the smart phone market is becoming saturated and competitors offer many of the same features at lower prices. Apple is adding a 3-D sensor to enable facial recognition in the phone and hopes the feature will spur more sales.

Sales of Apple Music and iCloud gained 22% and brought in $7.3 billion in the quarter. The app store continued to be a driver of performance, President Tim Cook said.

Linking to dividend paying stocks, Apple phones are still considered to be the best of the smartphones which is why people continue to buy them, as an investor you have to ask will they continue to buy them in similar numbers for 2/3 of the revenues of Apple is connected to the iPhone margins. While Apple continues to be the dominant company, the competitors are not far behind and in a year or two margins could fall, although unlike the competition Apple has billions in accounts outside the US waiting for the President to lower taxes before it comes back to the US.

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

 

One of the books which many people have heard about or read one version or another is Robinson Crusoe. The book was originally written by Daniel Dafoe in the 1700’s and the book was soon as popular as the Harry Potter series with the book going into multiple printing. Ever since then, people have been wondering who was the book about, how did Dafoe create the great descriptive passages? In that end a book called In Search of Robinson Crusoe written by Tim Severin published by Basic Books, New York, 2002 in which Mr. Serverin goes to Latin and South America to discover which island or place  Mr. Dafoe used for the island. In Mr. Serverin’s opinion and many others, the island was a composite or a group for not all the natural elements in Robinson Crusoe are on one island.

There are many stories and Mr. Serverin’s research into this book as well as his other In Search of books are well worth reading. In relationship to the theme of Dividends there is a story about a group of natives off the coast between the coast of Honduras and Nicaragua who generally have a subsistence life of fishing and killing animals from the rain forest. But every once in a while some money comes into the tribe and it was (or still could be) from the drug trade. The cocaine comes from Columbia and travels toward the United States. Every once in a while, the boats or planes have to offload their cargoes into the sea to avoid being captured. The native group (the Miskito Indians) retrieve the load and sell it to the drug traders or receive a finder’s fee. For generations, the Spanish mined gold and silver in Mexico and Peru and sent it to Spain. As the country grew richer and was the richest country in Europe, other countries were jealous and gave permission to pirates (had a letter from the government saying they were on official business, but the reality was the backers and crew split up the proceeds) to rob the Spanish boats. The navy of the Spanish gave passage to most of the boats, but other countries such as Britian claimed various islands in the Caribbean so the boats would have to pass British interests. The pirate trade similar to all shipping once in a while would run aground and if the ship was abandoned then its store house was for anyone to claim. Hundreds of years later, rather than gold and silver, the cargo is drugs. It is interesting to read what happens when the cargo is sold. Many of the men would go into town and get drunk and visit the prostitutes, although some would buy things for their boats; many of the women would buy things for their families and gold necklaces for their children (which can always be sold later or a savings account).

Linking to dividend paying stocks, it is a wonderful adventure to read books such as In Search of because of the question the the who? What? When? How? of the books you may have read as a youngster. The adventure is worthwhile. In your investing, it is better to seek the boring and the known way or profitable companies which pay a dividend. Next year, your research is are they still profitable to pay their dividend and then you can follow or read the next adventure story.

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

 

In the book, Louisiana written by Joe Grey Taylor published by W.W. Norton and Company, New York, 1976 the author has a chapter about what happen to the state after the Civil War. The time is called the Reconstruction, President Lincoln sent down Union Generals to begin the process to set up government under new rules. However, it was not the case that all black people could vote, it was still restricted to whites. It was also the time when violence towards blacks rose in a strange way, when blacks were slaves they were an asset to be protected; once they were freemen they were competition for jobs and violence rose. The result was the US military was called in and it was the military’s duty to register all adult males and if they had not voluntarily aided the Confederacy then the people could vote on the new Constitution of Louisiana. Things were progressing and the Lieutenant Governor was a black man. However, there grew a segment determined to keep politics white and for the next number of years limit the vote of blacks both institutionally and at the ballot box. Voting might mean a beating and in one case where a number of blacks were killed, a judge let those on trial go because no white man was going to convict a white man killing a black man. It would take a long time before attitudes changed.

Linking to dividend paying stocks, all companies go through trama at what time or next, what does it do is the question? Does it change? How or does it carry on? Over time, companies need to change but that does not mean often times it goes kicking and screaming before it changes. When you bought your shares, the company reflected your values to be profitable and pay a dividend, did it have other values you shared? Or wanted it to share? Could it do both?

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

For the 200^th Anniversary of the United States a history of all the states was commissioned and recently the book about the state of Louisiana was read. The book was written by Joe Gray Taylor published by W.W. Norton & Company, New York, 1976. The author focuses his work on the politics and economic development of the southern state whose cities include New Orleans and Baton Rouge. The state was a colony of France, Spain, back to France and sold to the United States along with all the lands the Mississippi River watershed encompasses in the Louisiana Purchase. The early life of the colony is a buffer for other lands controlled by France, Spain or the British, as a buffer there were few riches being sent back to the homeland. Until oil was discovered in the state, much of it was agricultural over time the three biggest crops were corn, sugar cane and cotton. By the 1850’s the biggest production farms were called plantations which were working farms. If the plantation focused on sugar, because of the more capital required a typical sugar plantation with an investment of $200,000 was making 9% of their investment. If the plantation was cotton there was less capital required, just land for a $100,000 1500 acre farm the return was about 7%. In both cases, the farmer grew the crop and sent the crop to New Orleans to a factor who sold the crop for a 2.5% commission. The invention of the telegraph with more instant communication meant the farmer did not need the factor. They could sell the crop themselves. Given agricultural crops, the prices fluctuated with the weather, pests, floods, and normal everyday events.

Louisiana had its share of timber operators cutting down great forests including cypress trees which take 100 years plus to grow, but the state is known for its politics. It seems there is ethics in the political sense, but not the economic one. Most politicians left office wealthier than they came in, but were thrown out because they were politically unethical. A couple really bad stories were to limit voting of the people the politicians thought who would vote against them? the legislators passed a law saying to vote one needed a high school graduation and proof of 2 years of paying real estate tax. This had the effect of limiting the voter turnout for 90% of Louisiana’s population did not have high school grades, unfortunately given the really low teacher’s salary most were lucky to have a public school. Another awful story is one of the parties ran a lottery which gave 50% away in prizes, the other 50% went to “grease” the decision making process and the lottery ran for over 30 years. The state is known as there is corruption in politics and Louisiana style corruption. Although, maybe things have changed since the book was written?

Linking to dividend paying stocks, not matter what era you look at, there are always constants with the system we are in. People need to generate income to live and eventually as money grows you need to look at alternatives. In the case of plantations, the farm needs to generate a reasonable return on investments although to decrease taxes it was possible to buy state bonds at 50% discount (due to state debt issues) and redeem them to pay taxes. Whether you are on the farm or in the city, you are essentially performing similar functions.

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

 

 

 

 

If you think of the basis of the world’s knowledge, who came up with the theories which began to understand how the world was formed or put together? does it make a difference what religion they were? If it does not and should not, the reality is the earliest abilities to understand was made by Muslims, in what is termed the Golden Age. In the book Lost History written by Michael H Morgan published by National Geographic, Washington, DC, 2007 outlines the earliest Muslim thinkers who began to put the logic, the numbers, the theories together to understand how man fits into the world. The calendar, the size of earth, where is earth in relationship to the planets, what is in the sky? Time, distance which meant the math of calculus, trigonometry were founded and used by the Muslims in the 700s. This was a time where people believed in reason (reason is the highest expression of G-d) and were given the latitude and expectations by their religious leaders. In the Golden Age, the brightest and best and all so inclined came to universities of the time and started to theorize. The standard was each theory no matter how compelling must stand up to observation and testing. In the environment, understanding in the 700’s there was no computers, the calculations of the scientists on the size of the earth was within a half mile of what we know it in 2000’s.

The environment was the key. Each of the scientists had to research and publish their findings which were shared with the other scientists. Sometimes the theories were wrong, but sometimes the theories were correct which then would translate into building projects – irrigation, buildings, transportation which made life better for everyone. The book describes many scientists, thinkers and artists who were well advanced of where Europeans were at. If it had not been for the Muslims and their books being translated into Latin for Europeans, the European world would have developed much slower. (one of the great assets of Florence which is the city at the height of the Renaissance is the libraries of the Medici). The golden age of great leaps of knowledge ended partly because of different leaders who had a narrow vision of their lives would burn the libraries (known knowledge, because knowledge is power) and have their citizens believe in only what they can see. Leadership matters, however the history of Muslim scientists lives on. Some of the names are Jabir ibn Haiyan known as the father of chemistry; Muhammad ibn Musa al-Khwarizmi known as the father of algebra and there are many others.

Linking to dividend paying stocks, the standard of theories no matter how compelling must stand up to observation and testing to be true is something to consider while investing. Every day someone has a theory how to beat the markets, which is a good thing. Unfortunately most will not stand the test of time, however it is good to have theories. One theory that has stood the test of time is companies that can afford to pay a dividend because they are profitable are good investments, particularly over the long term. If a company is profitable, the street will push up the price earnings ratio or the stock price will go up and receiving dividends along the way will push your total return up.

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

 

 

 

Most of the stories involving banks, tend to focus on the biggest 10 banks and their second quarter made $30 billion which is just short of what they made in 2007, the best year. The 10 biggest banks are back to making money the way they use to before the 2008 economic meltdown. In an article written by Yalman Onaran of Bloomberg News this money making machines has a problem, since 2010 the banks have been asking for less regulation (regulation both it submitting the paperwork and the ability to increase leverage or make more loans). The primary focus of any bank is to be paid back the loans it makes, the less the bank has to write off the more money it makes.

The 10 largest banks hold at least $100 billion in loans and now generate $57 million of profit for every working hour.

JP Morgan CEO Jamie Dimon suggests if the regulations were less the banks would have made more than $2 trillion in loans over the past 5 years. Mr. Dimon says small business are struggling to access capital markets. Although this is partly true, the other aspect is when there is seemingly trouble the first cuts to the limits bankers can lean go to small business.

Although are the 10 biggest banks are making more money, they are not as profitable as they were. Return of assets is about 35% below than 2007; Return on equity is about half of what it was. Higher capital requirements lowers the return on capital even if the assets earn the same margin.

Linking to dividend paying stocks, it is great the 10 biggest banks are making money for the banks then can continue to provide the credit which drives the economy. As an investor, you want your investments to do well, however the long term nature of the holding wants consistency. The regulations help maintain the consistency because the banks have to remember the cardinal rule of being a banker, get paid back with interest. Regulations can help stabilize industries; keep competitors out of the market; and allow for continuing profits to be made. Sometimes as an investor you want good regulations in place which are enforced.

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

If you look at cities around the world, Amsterdam stands out for a long time of what is good in a city. Something about the city is good and asking why to do your homework leads to a book called Amsterdam – A History of the World’s Most Liberal City by Russell Shorto published by Doubleday, NY, 2013. There are many interesting facts and theories about the city and its relationship between the separation of church and state.

In reading about the economic drivers of the city, one of the more interesting stories (bias) is the founding of the Verenigde Oost Indische Compagnie (VOC) or Dutch East India Company. For many years, the Portuguese controlled the trade routes to India from Europe, for a number of reasons, the Portuguese influence was falling. The Dutch sent ships to Indonesia and although only 89 of 249 men who left returned (not in great shape) the cargo they brought back, the investors made money. Two years later another fleet was sent but this time they brought back over 1 million pounds of pepper, cloves and nutmeg and the merchants made a 400% profit. A few years later, the merchants decided to co-operate and the VOC emerged. During its heyday, the VOC sent more than a million Europeans to Asia, brought back 2.5 million tons of Asian products to Europe. The genius of the VOC was in threading itself through the highly evolved network so by the end of a century later, the Dutch were selling spices not only to Europe by to China, India and even to the Spice Islanders.

The VOC was the first global trading company sending copper and silver from Japan to China for silk and porcelain, then selling those in the East Indies for the spices that it shipped to Europe. The VOC made porcelain, coffee, tea and dozen of other things literally household words in the West. It sold Indonesian sugar to Persia and Indian fabrics to Yemen.

Through the VOC people all over the world went from local cultivators to participants in the global trade networks. All of this involved a transportation system, insurance, storage and processing. The materials were sold to Europeans or it was the beginning of consumerism. Much of the infrastructure was built in Amsterdam.

The VOC was the first company sold on a stock market on August 31,1602 when 1,143 people bought shares in the company or 57% of the stock was issued. A healthy market in trading the shares developed and as the profitability grew.  The company originally paid dividends in spices however by 1618 cash was paid and for over 200 years the company paid its investors healthy dividends.

Linking to dividend paying stocks, we often think of global trading stocks as a 21st century thing, but in reality there were global stocks paying dividends in the 1600’s.

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

In late June John Miller, Silke Koltrowitz and Michael Flaherty writing for Reuters reported Nestle plans to buy back 20 billion Swiss francs ($27.4 billion) of shares over 3 years. The reason is Third Point had bought $3.5 billion in stock and pushed management to aggressively boost performance and buy back shares. Nestle is a Switzerland based company with a global reach in foods and is the world’s largest food group with more than 2,000 brands. To do the buyback, the debt will rise to 1.5 times earnings before interest, taxes, depreciation and amortization. The corresponding figure this year is 0.8 times.

Nestle is struggling to grow as emerging markets slow, consumer habits change and people flock to smaller, independent brands they see as healthier and more authentic. Triple Point is controlled by Daniel Leob and he sees the world differently, he believes it is rare to find a business of Nestle’s quality with so many avenues for improvement. The President of Nestle Mark Schneider has met with Mr. Loeb and noted size alone does not protect you from the winds of change.

Linking to dividend paying stocks, the great thing is they pay a dividend, the tougher part is change is always focused on them, and it is testament they can continue to pay dividends. Even if your investment is relatively stable there are metrics to watch.

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

When you buy a stock, you are an owner and one of the votes you have is executive compensation. Depending on the size of the company, the ownership of the stock some votes are more important than others. In mid June, Ian McGugan examined Yahoo’s Marissa Mayer. When she was hired for the job, she was high profile and expected to turn the company around and was given generous stock options. The company was sold to Verizon Communications Inc and the stock options for the next President will be less. Ms Mayer had a $23 million severance package (which is likely more reasonable) but stock options both restricted and unrestricted of $236 million according to CNN.

The big question was she worth $236 million? The biggest reason for the rise in stock price is two holdings 15% in Alibaba of China and 35.5% of Yahoo Japan. The rest of the company the profit went from $3.31 a share in 2012 to a loss of 23 cents in 2016. However due to the two big holdings the stock price tripled while Ms Mayer led the company. Should people be rewarded for being lucky?

Mr. McGugan raises the question because there is no good reason why Ms. Mayer should leave the company with $250 million and others in the company leave with so much less. What value did she achieve? There is no good answer, but this example was one of those what seem to stick out why is executive compensation so high relative to the rest of the workforce? The compensation consultants and directors reasoning does not seem to work.

Linking to dividend paying stocks, as long as the company is making money compensation while extraordinary important inside the company is not that big of a deal to shareholders. When the company loses money, the knives come out very quickly.

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