If you look to the sea either now or during the summer, hopefully you will see small waves lapping at the shore and enjoy a great day at the beach. If you happen to see a shipping container boat going through the waters you might think 95% of all goods are moved by ships. If you are a passenger on a ship, you might think this year more than 10 million people will be on ships going for cruises. All the above means we are connected to the seas and many people expect to be on the ocean everyday.

In the past, there were old stories about a rogue wave which is a wave which can reach 100 feet tall or the size of 10 story office building. The difference is eventually the wave will crest and fall against something, when it does, there is tremendous power in the wave. ( watch a few documentaries about tsunami’s and the affect on the land when it meets structures) We used to believe that a 100 foot wave occurred every 10,000 years or 5,000 years, but very few people saw it and would ever experience the waves. Watching the documentary Rogue Wave on the History Channel, it seems rogue waves are happening more often. Over the years there were many theories – the wind pushing the waves, and a current underneath the waves the energy would spike; depends on the ocean floor – underneath the water, the ocean is not flat – it has hills and valleys and plateaus and when the waves went over the plateaus it could cause a rogue wave (Bermuda triangle); another theory is where the great oceans meet – South Africa where the Atlantic and Indian Oceans or the tip of South America – the Pacific and Atlantic. In recent years, those who study the oceans are using satellites to understand waves. In turns out, the rogue waves are more frequent than had been imagined.

Linking to dividend paying stocks, the good news with the understanding rogue waves are more frequent is the insurance companies are demanding better ships to withstand the waves. Rarely do the rogue waves make it to shore, but ships will be all over the oceans so they need to be insured.  A couple of years ago, stock market investors were considering Black Swans as part of their investment strategies; in nature we have rogue waves to deal with. Things happen and we develop tools to help us understand and protect ourselves. For example, invest for the dividend and the capital gain will come as time marches on – more profitable stocks trade at higher multiples.

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

According to Reuters, the London Stock Exchange and German Stock Exchange were attempting to merge which would have created the largest stock exchange in Europe. Mergers of the companies would allow its largest companies greater access to capital, create efficiencies to lower costs and still make money. There could have many advantages and the two exchanges have been working to create a merger for this was their 5th try.

There is another bigger reason why the merger failed – Brexit. When the United Kingdom was in the EU, from an economic perspective the barriers between the countries fell allowing  goods and services could move anywhere in Europe. In the case of England or London which has a heavy concentration of financial services company, there is a special law which allows people and capital to move around Europe with very little barriers. The United Kingdom voted to come out of the European Union and one of the consequences is the barriers will rise. Of course it is the UK’s idea they will negotiate with individual countries to have similar agreements but that is years away. The EU has said, it is better to be in than out and there is a cost to being out.

The bigger concern is over the next few years supply chains for English speaking companies. For example, many American companies use England as their first stop and then use wholesalers and distributors to go throughout Europe. For over 40 years, this has been the normal and recommended method to do things, now something will change. In America, President Trump has talked about adding tariffs to come into the US and negotiate trade deals on a country to country basis. Something similar will happen in England.

Linking to dividend paying stocks, for countries to go individually or go in a group there are advantages and disadvantages to each method, but all countries can determine what is best for themselves. With the Brexit movement, you can see government actions have consequences. As a business, you can live with it or find alternatives, some will be less expensive.

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

Recently watched a movie called My War directed by Oxide Pang and released in 2016 and is dedicated to the Chinese volunteers who fought against the US in the Korean War in the 1950’s. Similar to war movies, the movie is based on a number of characters whom the audience follows for the couple of years the movie is based on. Similar to most movies, you begin to like one character or another otherwise you would find another movie and then the war starts – the two sides are killing each other – the US and Chinese soldiers are die and it is sad. However, as someone who lives in North America and seen movies about the same period of time, as an audience member I was emphasizing with the Chinese characters. When they defeated the Americans, was it good? The war eventually ended in a stalemate and North and South Korea were divided.

Linking to dividend paying stocks, as an investor putting your money to work for one company or another, you try to pick winners. Similar to who you work for, you are there therefore the company is better. If you worked for the competition, the competition would be better. We all pick sides, but in reality in the marketplace everyone is trying to do similar things, however because our money or our time is invested in one company or another we think them as better. In business as long as the companies stay in business, very few people die, but it is important to remember we all have biases. Every once in a while, do some analysis of the competition, are they really that bad? or would you consider investing in them?

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

Those of us who live in the northeast tend to have a sweet tooth and we can blame it or be thankful for nature. One of the trees that grows in the region is the Maple tree which is known for its leaves turning color in the fall. In relationship to the sweet tooth, it was discovered many years ago, before the buds change to leaves, the tree is dormant and when the temperature climbs up in the day time and freezes at night, the sap will run and it is possible to make maple products including syrup. The book The Maple Sugar Book written by Helen and Scott Nearing of Galahad Books, New York City, 1950 outlines the history and the tasks involving Maple Sugar. The tasks involve boring a hole in the tree putting in a sprout and attaching a pail. Then when the sap is running, to collect the sap and boil it down to become syrup or liquid gold. Up until 1865, the producers of the north-east dominated the sweets market, then sugar from cane came along and prices fell for sugar. The first choice of the population was sugar unless the family lived on a farm in the northeast where maple syrup was made.

In the old days, families collected the sap, deposited in larger container which the horses pulled to the sugar house and the sap is boiled. Now days, it is much easier to do the operation with plastic pipelines to bring the sap to the sugar house. If you wish to do sugaring on a smaller level, all you need is some maple trees and remember the kettle should be about 3 times  the size of a batch. Gather the sap and boil and soon you will enjoy the syrup. For many farmers, the land around the maple trees is used for raising cattle in the summer; but in late February early March when the sap is running, the syrup can be made for home use and as a cash crop.

Linking to dividend paying stocks, with maple trees as long as the farmer treats his trees well, they will provide sap for many years to come. Ideally you invest that way, the return will provide dividends over many years as well as capital gains as profitable companies are worth more to everyone and trade at higher multiples.

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

In the developed countries, they had an infrastructure for rotary phones, in the developing countries only a few had rotary phones. Then cellphones were invented and soon everyone in the country had access to cellphones. The good news is early entrants into the market could become giants and generate billions of dollars. In India with a population over 1 billion, two of the giants are Vodafone and Idea and in mid March they agreed to a merger which will result in 40% of the market share or 400 million customers. In most sectors, the companies with a 40% market share can set prices, has a loyal customer base and should be able to generate profits. Investors generally vote yes to mergers like this.

The story in India is different, because one of the competitors is Reliance Group’s Jio Infocomm which has a 4G mobile broadband network . Jio is owned by the India’s richest man and he has been offering free services for months. Free means that every cellphone holder in India has examined switching to the Jio network and the competition has to be competitive which sent prices falling making margins thin and profits lower. There maybe a good reason why Reliance is free, the Group could be using the cellphone customer base to cross sell other features; the owner could be upset with the competitors; the owner could be partially acting for the government’s interests (Reliance has infrastructure operations as well as finance and entertainment subsidiaries). Whatever the reason, Reliance has changed the cellphone market in India.

Linking to dividend paying stocks, the ideal for dividends is a monopoly like conditions where prices can be influenced upwards, not set but generally be raised to cover costs and protect margins. In India it was possible to disrupt the cellphone market, which means if the competition has access to capital it can; generally it does not. The ideal dividend stock can help set prices upwards and keeps margins healthy for profits to be made and dividends to be distributed. Change sometimes means new entrants into the market who see those fat margins.

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

In mid March it was reported by Reuters there is a scandal in the meat industry in Brazil. The scandal involves meat packers paying bribes to politicians and meat inspectors to overlook practices involving processing rotten meat and shipping exports with traces of salmonella. The President of Brazil Michel Temer said the probe involved only 21 of the 4,800 meat-processing units. The issue for Brazil is agribusiness and the export of meat is a multi billion dollar business with most of the meat going to China and South Korea.

When the average consumer buys meat, they expect the meat was inspected when the beef and poultry was alive; when the animals went to stockyards to be killed; at the meat packaging plant to ensure it is fresh; at the distributor and finally at the supermarket, where it is available at a competitive price. That is a number of inspections and the supply chain has been managed to exceed expectations for the average consumer. When a scandal happens, the worst companies and the best companies are put in the same category because the average consumer rarely asks did the meat come from a specific meat packer? they ask what country is involved?  The immediate reaction is the supply chain will be slowed or stopped and the world’s largest poultry producer BRF SA stock price went down. Other companies including JBS also had declines in their stock price. The government of Brazil is in crisis mode to protect the exports and to ensure the other competition does not move in. The other competition would be US, Canadian, Australian, Argentina and other producers of poultry and beef.

Linking to dividend paying stocks, in every industry there is competition waiting for the other side to shoot themselves in the foot. Brazil’s meat industry shot themselves in the foot for trying to ship less than 100% confident meat and to fix the problem means the meat industry will be under the microscope for the next year. After a week of negotiations, the shipments were allowed to continue to China, however Brazil and the meat packaging industry lost something to the competition.

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

After the utilities group, one of the common feature of banks should be their safety and long term values. If you move into a neighborhood, one of the features you are looking for is the bank. As long as the amount of loan loss is low, the bank should easily make money, which means for dividend investors it is hard not to have a bank(s) in your portfolio. Which banks are a relative bargain? Sean Pugliese of Wickham Investment Counsel wrote about banks in late March. His criteria:

banks in the S&P 500 index

dividend yield  – annual dividend divided by share price

debt -to -equity ratio – provides a safety feature and is total debt outstanding divided by shareholders equity. A smaller number means less leverage.

price-to-earnings ratio  is the share price divided by earnings per share. The lower the better relative to other companies.

earnings momentum is the change in annualized earnings over the last quarter. A positive number means the earnings are growing and ideally translates in higher share prices and dividend increases.

price-to-book ratio compares the stock price to the book or equity value per share. A lower number is good.

return-on-equity is the net income divided by shareholders equity. The number reflects profitability of the company and higher is better.

Company                     Mkt Cap    Dividend   Debt/              P/E     Earnings   P/B     ROE

(US$ Bil)    Yield %       Equity %                   Mom %                 %

People’s United Fin        5.7           3.6               39.4             19.2      3.3             1.2        5.8

Wells Fargo                   279.5           2.6             176.3            13.9       0.0            1.5        11.8

BB&T Corp                       35.6            2.5               64.4           14.9        3.0           1.8          8.8

Huntington Banc           13.8            2.3              116.4            14.1        -4.2         1.5         8.4

Fifth Third Banc              18.7           2.1             111.4             14.6         4.9          1.2         10.0

JPMorgan Chase           312.2            2.1             194.9            13.6          4.5          1.3         10.0

US Bancorp                       89.2          2.0            100.0            15.4          0.9          2.0        13.6

KeyCorp                             18.1           1.8               96.4            13.6           3.7          1.3          6.3

M&T Bank                          23.8          1.8               58.6            18.4         -0.9       1.6           8.1

Average  or divide 17                       1.9                94.4          15.2            3.2        1.3            8.0

The other banks covered were SunTrust, PNC, Regions, Citizens, Comerica, B of A, Citigroup and Zions.

Linking to dividend paying stocks, these stocks were ranked from the highest dividend yield, but you can easily rank them on other variables. Banks are the drivers of our economy because they give credit to businesses and families. If we have no credit, we pay our bills and not much else. With credit we can expand or think of the future. In investing in banks, you want to realize the profitable dreams. Examine the variables and realize often times you are picking between two or more reasonably equal companies. Each of the companies tend to service or gain the bulk of their business in one geographic area and you will want to know what your views are of the area.

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

 

 

 

A week or so ago, Paul Hoyda of Thomson Reuters examined opportunities to invest in defensive stocks which have a track record of maintaining dividends. The emphasis is on defensive stocks and Mr. Hoyda’s critera are:

market capitalization of greater than $20 billion

dividend yield of greater than 5% and a record of increasing the size of the dividend

Company                                  Market Cap           Dividend       5 year Avg         12M  Total Return

(US $ Bil)               Yield               Div Yield              (incl Div)

Energy Transfer Equity          20.170                       6.1%                   5.2%                         180.0%

Plains All American Pipe       21.252                        8.4                      6.7                              45.6

Enterprise Products Ptn         58.352                       5.8                      5.3                                21.6

Las Vegas Sands Corp              43.804                      5.2                       3.7                               11.4

Welltower      Inc                        23.928                     5.2                        4.9                                  4.2

Linking to dividend paying stocks, under Mr. Hoyda’s criteria only 5 companies made the list. The idea of research is to define the criteria which makes sense for you and then narrow the field, and hopefully all will good. In this case, given the history of paying dividends, the total return may change, but the dividends should continue for some time to come.

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

A few weeks ago Peter Ashton of Recognia examined Material Stocks or chemical and packaging companies. Companies which add value to raw materials, as the economy continues to grow one would expect volumes to grow. The more the volume, the less expensive it is to produce whatever they produce. Mr. Ashton criteria was:

minimum capitalization of $ 2.5 billion   (capitalization is number of shares x market price of stock)

companies with forward price to earnings (P/E) ratios of less than 18

companies with a price-to-sales ratio of less than 1.5

dividend yield of greater than 1.5%

Company                                   Market Cap                    Price/Sales             Forward            Dividend

(US $ Bil)                        Ratio                        P/E Ratio            Yield

LyondellBassell Ind                 35.7                                 1.19                            9.6                        3.7

International Paper                  20.8                                1.04                          15.4                        3.5

Huntsman Corp                            5.3                                0.47                         14.6                         2.2

Eastman Chemical                    11.3                                 1.23                          11.7                          2.5

Dow Chemical                            77.3                                1.44                          17.6                          2.9

PolyOne Corp                                2.7                               0.79                          16.0                          1.5

Graphic Packaging                       4.1                              0.91                           17.8                           1.9

Cabot Corp                                       3.6                             1.3                              17.3                           2.0

Linking to dividend paying stocks, all the stocks pay a dividend and what is easy for your research is by varying the criteria you will either add or subtract companies from your list. The materials companies are very dependent on price of the raw material, so you may wish to factor that into your analysis, however they tend to dependable in generating constant revenue streams. All stocks go up and down and perhaps there could be some of these types of companies in your holdings.

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