A few months ago two drug companies merged with the intent of having their head office in Ireland in order to save US corporate taxes. We know their are trillions of dollars in bank accounts not in the US because it is taxed less. When you hear about these stories the one thinks of The Bahamas, Bermuda, Cayman Islands, Panama and other countries around the world. Last year, on a visit to the Cayman Islands (did not open a bank account)but saw all the big mutual fund companies have offices or signs in front of offices on the islands. There are good reasons, the laws are written what goes on in the Cayman stays in the Cayman and will not be told to anyone under the threat of jail terms. For many companies and people, tax avoidance is part of normal life – the companies and people keep more of their wealth and pay less taxes to their home governments. There can be as many reasons as their people for people to reduce taxes – some believe in small governments and only willing to pay a little, but not too much. It is generally believed about 15% of the money around an economy is from crime proceeds – now days the drug industry is the biggest component. However, not paying the taxes legally is something many more strive to do. It is relatively easier to open and transfer money to accounts in the islands, and once it is there because of secrecy laws, it typically gets transferred between number companies a few times before it lands at its destination. The secrecy laws makes tracking the funds very difficult and very time consuming.

In a book called Canada – A New Tax Haven by Alain Deneault published by Talonbooks, Vancouver, 2015, the authors suggest that Canada ( a so called respectable country) has embraced or made it easier for companies to use Caribbean tax haven countries through treaties and various banks having a long history of branches in the region. Over the years, the customers included United Fruit – which sent more money off the islands that invested in the islands for the people; the laws have evolved that made working with tax havens much easier. For example transfer pricing is a legal method and very well used in the corporate world. The company sends money to a subsidiary in the tax haven; since it is to legal to deduct interest for loans and mispricing results. A example is the subsidiary charges $100 for what costs $ 2 in the home country. The money is in a tax free country and kept on the books of the company. The the tax rate is lower and the corporation maintains more of its wealth. The real point is the money really never went anywhere, never added any more value. The issue becomes if Canada is operating like a Tax Haven why would any company pay their fair share and what is a fair share now days?

Linking to dividend paying stocks, as investors we expect company treasurers to take advantage of the legal loopholes given by the country. We want the company to be profitable and pay the dividends and we keep more because of the lower rate of taxation. When the amounts get to be too much, as individuals you wonder if the system we have is right for our home country? or is this the way it is?

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

 

 

 

 

If life we will experience life and death, often times they bring families together. Life or a new baby is hope for the future, death is the ending of one life and celebration of the life. Death also involves doing something with the body and funeral homes. Many years ago, the ceremony revolved around the church, now many funerals are held at the funeral home for people can gather and then move to another room to meet and greet. The funeral home does not do this as merely service, there is a cost to it and it is a business. In the past, people were buried in a casket and went into the family plot or area of the cemetery; now that families live near and far, cremation is a option for the family. For the funeral home, one brings in more revenue than the other. It is with this in mind, the book Curtains – Adventures of an Undertaker-in-Training by Tom Jokinen published by Random House, Toronto, 2010 was read. Mr. Jokinen is a radio producer who was interested in the funeral business and spent a few months learning the industry and wrote the book.

Funerals tell us about changing families, changing attitudes and economics of the person. Many people really do not spend a great deal of time thinking about their funeral, for much of our lives are spent on living it. When a spouse or friends begin to die, people will have a general idea, although if your are thinking about your funeral also think about your will – have one. The funeral industry – the pick up of the body from the hospital, the dressing of the person, the getting to know the person, the obituaries that are a mainstay of newspapers, to what type of funeral makes the industry an interesting one that is constantly changing.

Linking to dividend stocks, for many years the preconceived notion of burial was in a casket which lead to funeral homes providing that service for a fee. The funeral business got used to it and was a good business to be in, with more cremations that is a lower revenue product, the funeral industry needs to change or adapt to those who want the caskets. No industry ever remains the same, however change affects all – if they are making easy money who wants to change to work for it? No matter what type of stock you own, how your industry adapts to change will be a constant theme in the years ahead.

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

The US pipeline giant Kinder Morgan cuts its dividend by 75% during the second week of December and this was a big change from years of growth and increasing dividend payments. Kinder Morgan arose from the days of Enron who sold the pipeline division to concentrate on other things. The pipeline was taken over by Richard Kinder and others and made Mr. Kinder a billionaire. For many years, it has been a great investment with a rising dividend. John Heinzl who writes in the Globe and Mail offered some lessons from the reversal. The lessons are:

1. A rising dividend alone does not guarantee anything

One of the analysis is to ask if a company not only has a dividend but raises the it and what is the expectation of raises in the future. The rising dividend can be a very good sign if it is supported by growing cash flow and earnings, a healthy balance sheet and favorable business outlook. If those things can change, then the story has a different ending.

2. High yield = high risk

In September, Kinder Morgan’s yield was 6.3%, by the time of the cut in dividend the yield was 13%. When the relative yields at the bank are much lower, the stock market is telling you something.

3. Payout ratios matter

Through the first 9 months, Kinder Morgan made 1.58 a share and paid out 1.42 in dividends, the ratio was 90%. Common sense tells you 90% for you, 10% for the company is not a good balance. The 10% left little money for reinvestment into the company and seeking new opportunities. Something had to change.

4. Debt ratings matter, too

Kinder Morgan’s bond rating was getting close to junk status. A pipeline can not operate on junk status, they needed to increase the rating and one method was a dividend cut.

5. Don’t count your dividends

Project your dividends, but do not spend them until they have been declared by the board and the money spent. Boards can change their minds.

Linking to dividend paying stocks, while we all look for simple methods to determine which of the many companies we wish to buy and hold, the financial health of the company remains  the reason why you need to do your homework.

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

Part of investing is learning and not losing money is the hardest lesson to learn. Many people in the investing world are out to get your money and scams have not changed much in the past 100 years but the emphasis changes. If you look at interest rates, they are low – if someone comes up with an idea to increase it with no risk RUN Away or stretch the time you need to make a commitment. Remember someone trying to scam you wants you to do action today.

If it sounds too good to be true it is.  Trust your gut instinct. Always get advice. Buy the best stocks you can – this is time to trust the brands.

Commodity prices for minerals and oil have fallen to new lows. If you are going to buy, look at the best companies. ideally a dividend while you wait for the price recovery. The best stocks will go up first, then the juniors make moves when prices have already gone up to justify buying a possibility. The best stocks will actually own the resources and now will be getting paid a higher price for the resources

The big warning signs according to the Financial Consumer Agency are:

You are promised high returns with no risks. No such thing there is always risks.

You are contacted by someone you do not know. The people on the phone may be nice, but they are after your money. Ask yourself if you had less, would they still be nice?

You have to act fast – a once in a lifetime opportunity. Always act slow.

You are asked to keep the matter secret.   Tell people, they may have been contacted before and have a story to tell.

You have to pay fees in advance. You should never pay fees in advance.

You are told a regulatory agency approves the investment. Regulatory agencies do not approve or offer an opinion on the quality of the investment.

Linking to dividend paying stocks, we all want to make money and have enough for our needs and beyond. Many people have done the correct things all their lives, and financial fraud is designed to take away your money. Buying dividend stocks will not make you rich this year but if you hold them for years, adjusting them on a yearly basis, they will give you a good income and prices of the stocks will tend to rise over the years.  The turtle method of slow and steady is truly a good method to use.

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

 

 

 

 

When you read the financial papers and the general emphasis is on protecting your money rather than choosing from the many opportunities to grow your money, you need to look at if at companies with moats. The bigger the moat, the better and a moat means lasting competitive barriers to entry. Ian Tam from Morningstar Research recently looked at some companies along with companies showing positive earnings and price momentum. These should be the best of the breed stocks.

Morningstar defines moats through the specific qualities associated with economic moats:

• intangible assets – brands, patents, regulatory licenses
• switching costs
• network effect – when the value of goods or services sold increase for both existing and new customers
• cost advantage
• efficient scale.

The combination of these qualities will determine how wide the moat is. All the stocks below have wide moats.

The other columns are Moringstar Fair Value Estimate Dividend by the Price, Earnings reported quarterly, 5 year growth rates and dividend yields.

Name   Company         Fair Value   Quarterly Earnings  5 Yr     3 Month   Yield

Estimate/Price  Momentum       EPS     Price Change

1. Gilead Science           1.23                 13.69%              78.88   5.99     1.65%
2. Allergan PLC              1.17                   9.3                     61.96  16.44    0
3. Magellan Midstream 1.26                4.6                     22.86  0.22      5.06
4. Monsanto                     1.33                  1.6                     17.15    14.66    2.21
5. Time Warner               1.33                  0.61                   17.05     2.71     1.98
6. Walt Disney                 1.17                  6.62                   20.51     11.78   1.24
7. Cerner                            1.15                   6.36                   21.69     0.28    0
8. McKesson Corp            1.17                   4.85                   19.64    2.98     0.59
9. Ritchie Bros Auction  1.16                    5.51                   12.41      0.15    2.47
10. CBRE Group                   1.04                   5.94                  21.81     14.59   0

According to Moringstar Research if you kept yourself in the top 10 names for the last few years, you would have average 10.8% return as opposed to the S&P 500 of 7.8%.

Linking to dividend paying stocks, often because these stocks have a moat they can continue to pay the dividends for a long time to come because they are profitable or regulated to ensure they have a good return on investment. Stock markets go up and down, only in hindsight do you know what happened, you might as well pick up income along the way and try to invest in the best possible companies. The above 10 show a starting point.

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

 

 

If you listen to politicians, they talk about the middle class all the time which is the reason why nothing gets done. There are many theories to how to help the middle class and part of the concern is while the rich can spend, they can only buy a limited number of goods and services. For the economy to do well, the middle class has to spend, however if the middle class is spending, at some point they spend too much. What is good for the economy is not necessarily good for each household.

The question is why are households including two income households increasingly going broke or declaring bankruptcy? In a book written by Elizabeth Warren and Amelia Warren Tyagi titled The Two Income Trap – Why Middle Class Mothers & Fathers are Going Broke? published by Persues Books, NY, 2003.

There are many reasons why the middle income or two income families are going broke and one of them has to do with interest costs and credit. Many years ago it was hard to gain access to credit and because it was hard, most people did not access it. They lived their lives as much as possible with it. Credit card was invented with Diners Club and know the two biggest names are MasterCard and VISA. The banks own most of the shares in the companies and individual banks “sell them or give out credit” as they see fit. If you pay off you credit cards every month, the service is invaluable. If you do not and pay fees and late payments and other fees, you are the people the banks want as customers, you make them money. There lies the problem, the people who need the most help, the people who should have the least credit and the money makers or there is very little reason to stop them from having credit to pay interest upon interest and other fees along the way.

What should the average person do – go through the financial fire drill on a regular basis.

1. Can your family survive without one income? Could you survive on one income for 6 months?
2. Can you downshift the fixed expenses? How much of the budget is fixed expenses or need to be paid month after month no matter your income? What can be cut to save on expenses? Do not stretch yourself on a house you can not afford. Most people move 4 or more times, buy then upgrade with a bigger down payment.
3. As long as your fixed expenses are low enough for you to manage through a crisis, then you can splurge or have fun.
4. What is your emergency backup plan?  Whenever possible go for the shorter commitment, that will give you most need in times of trouble. It will also save you money – you will pay less interest.
5. Plan your expenses and solutions the same as in business. If you have to pay creditors, remember companies plan for non payments.

Linking to dividend paying stocks, above MasterCard and VISA were mentioned. For the past few years, the companies have maintained a 40% return on investments and their stocks rose in value. The new concern in the market place is will Amazon, Google and Pay-pal on the phone change those margins to under 10%?  There are many reasons why the 2 income trap of the middle income group is under pressure and it will not likely let up soon, there are many individual stories of families doing ok and well.

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

 

 

 

If you listen to politicians, they talk about the middle class all the time which is the reason why nothing gets done. There are many theories to how to help the middle class and part of the concern is while the rich can spend, they can only buy a limited number of goods and services. For the economy to do well, the middle class has to spend, however if the middle class is spending, at some point they spend too much. What is good for the economy is not necessarily good for each household.

The question is why are households including two income households increasingly going broke or declaring bankruptcy? In a book written by Elizabeth Warren and Amelia Warren Tyagi titled The Two Income Trap – Why Middle Class Mothers & Fathers are Going Broke? published by Persues Books, NY, 2003. The first thing they tackle are the myths of why they are going broke because the statistics indicate their parents made less money but managed. One of the myths heard around the holidays is the over-consumption myth – they spend too much on things they do not need. While one can always find examples, the reality is clothing and food are actually decreasing in price. The real reasons are generally something else.

A dream of many people is to own a house in the right neighborhood and for the price to increase in the years to come. The choices have costs associated with them. The right neighborhood can be those with great preschool course for the children to have all the advantages. The problem is the best preschool comes with higher house prices and there is a theory about keeping up with the neighborhood. If everyone has a relatively  new SUV and you drive a 10 year car, do you fit in or would you update? These and many other costs can increase the cost of living in a home. Ideally pick a home you can afford according to the old budget formula, including making a down payment to avoid extra fees. If you choose a house and your fixed expenses consume a high proportion of your income, what will you do when things begin to break down and need replacement? in the home and in your life? House prices affect the declining middle class.

We all hope we are healthy, when a baby is born we ask is it healthy. If not health costs and insurance costs drive the budget as they are part of the fixed costs people have. If you are healthy, life is easier.

Women’s role play a good and bad part of the decline of the middle class. When women were generally at home, they were the great all-purpose safety net. Even though they were not paid, they could and did many jobs which kept families together including finding work. They were the ultimate insurance in case of unemployment or disability of their spouse. With two income families – there are extra costs but there is little leeway for the non fixed expenses.

An addition fact for the middle class is through no fault of their own, there is a high probability that one or both of the wage earners will be laid off or lose their work. In the 1970’s it was 2.5% chance; in the 1990’s the odds were  6.3% will have a “pink” slip. In the 2000’s it is likely higher.

Linking to dividend paying stocks, often what is good for the company may not be that great for the workers. As dividend investors we want the company to control costs as well as make profits to continue to pay for the dividends. In the information age, the most effective cost to cut is people; which of course means people have to adjust to something.

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

 

 

 

Everyone has access to information and seemingly it is hard to determine what will happen in the future. As an investor you want knowledge, understanding and clarity. But if you read the financial press you will generally come across conflicting stories. In an article titled Tips for staying afloat on a sea of financial new, John Reese the CEO of Validea Capital wrote he saw information suggesting oil was going down to the 20’s and oil could go up to the 80’s, one of the prices will be correct and one will be wrong. The problem is of course, each side has very valid reasons for predicting one way or another and you never know for sure until the event has passed. What do you do? Among Mr. Reese suggestions are:

1. Be a fox, not a hedgehog.

Gather as much information as you can before making a decision, particularly information representing opposing viewpoints. When you made a decision, ask yourself How might I be wrong? Then you will know how to make corrective actions, if you are wrong. If you are correct carry on.

2. Consider the track record

In your research you will encounter many people making an opinion. Some people make opinions to drive people to their funds; some opinions you will like and others you will not. One thing you can do is determine their performance in the past. Most will have done some things very well and others will be average.

3. Stick to the numbers

You can always read more information, but at some time you will need to look at quantitative systems that focuses on fundamentals and financials of stocks rather than the subjective ones. There are a variety of people who have and had a long history of making money – Ben Graham, Warren Buffett, Peter Lynch and others. You can learn from them.

Linking to dividend paying stocks, the reason why this blog suggests you start with these companies, and there are lots of them , is profitable companies will tend to lose less stock prices fluctuates) but if you hold them for a few years, the dividends plus the market price to earnings ratio will make money for you. When the market tend to go down or is bearish there is a flight to quality stocks and their price to earnings ratio goes up because they make a profit. Along the way the dividend payments add to your total return.

 

 

 

 

 

In the old story about King Midas – he loved gold so much that he wished for and was granted that everything he touch would turn to gold. This power was great when he touched his plates, his bed, his throne but became too much when he touched his daughter and could not eat because they turned to gold. The Midas story will be with us as long as our economies are based on money and the desire to have more. One of the great writers of the late 1970’s to 2000 was Anthony Sampson and one of his books is called The Midas Touch published by BBC Books and Hodder & Stoughton, London, UK , 1989. In the book and there is a TV series, Mr. Sampson explores money and people. Fortunately for us readers, Mr. Sampson knew many of the leaders of companies and countries and he gives an excellent analysis of how money makes the world go round.  For a variety of situations, you could easily change the country name and the situation would be the same as the time when Mr. Sampson was writing.

One could easily change the greenmailers for the hedge fund kings; the influence of Japan for China; and countries awash in debt have grown. We know in general, that people will strive to accumulate and sometimes it will be good (borrow with relatively inexpensive money) till it becomes bad (repay with expensive money). Fortunes will be made and fortunes will be lost and headlines will be seen of the business pages.

Linking to dividend paying stocks, if your company can stay profitable during the economic cycles, it stands to reason that opportunities can be taken advantage of during the economic cycles. During the relatively easy money, credit can be used to enhance returns; and during the expensive cost of credit; divisions of companies can be bought as the parent has to sell to pay the debts. To maintain this balance, a company has to be profitable and prudent – two easily found variables in dividend paying companies. If the companies are profitable enough to pay its dividends, then it should be profitable enough to take advantage of opportunities.

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