For many people around the world, the sea or oceans are not far away for very good reasons. People first settled around where there was food – the sea and then learnt to grow things in the ground. From the seas we travelled, moved goods and then later developed trains, cars, roads and airplanes, but we still move remarkable amount of goods by the sea. Daniel Sekulich wanted to learn more about the ships and wrote a book called Ocean Titans published by Penguin, Toronto, Ontario, 2006. He writes about the building of the ships in South Korea to the recycling of the ships in India. In between are stories about the designers, the owners, the ship captains and the people who work on the ships.  It is an interesting story for much of the work is done where no one sees for they are in the middle of no where in the oceans. Most of the time the ocean is easily passable until storms happen and then if nature is not respected, cargos do not make it on time.

Much of the business of cargo ships is moving goods quickly and when demand increases the pressures to deliver consistently and quickly increase. When demand falls, there are too many ships and to achieve the proper balance ships have to be taken out of service. There is no doubt the ships are better over time, but the essential business aspects remain the same. Move large amounts of material for relatively less cost in order to mark up the finished goods.

Linking to dividend paying stocks, no matter what industry there is today, chances pages have been written to help you guide through the industry. In the book Ocean Titans, there were different perspectives of people depending on their job from the captain to fill up the ship and sail smoothly to the next destination; the workers to quickly and efficiently load and unload the ship; and the owners who are trying to ensure the cycle repeats itself. There should be little reason why your would not understand what the company does.

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

 

There are many methods to try to find the outperforming stocks and the only perfect information that anyone can tell you is to look backwards. When you look forwards it becomes an educated guess, but there are always methods to minimize the risk. In this column Jean-Didier Lapointe of Inovestor Inc used the software from StockPointer to look at US large capital stocks.

The first thing he did was to use the S&P 500 from that list it was narrowed down to

market capitalization of at least $5 billion.

all companies must pay a dividend

an economic performance index or EPI (return on capital divided by the cost of capital) above 1.5

a positive EVA per share (economic value added or cost of capital – return on capital and multiply the result by the total invested capital.)

a return on capital of 15% or more

Positive free cash flow to capital. A positive number is good; 5% and above is excellent

debt-to-equity ratio to be taken into consideration.

Mr. Lapointe added a few more variables and you can do the same – the analysis can be done by all the reputable brokerage companies.

Company               Mkt Cap       Divid     EPI      Return        EVA          FCF        Debt

(US $Bil)     Yield %                  on Cap                           /Cap       /Equity

Altria Group        124.                  3.57      3.5        24.90 %         2.30        5.9  %           468%

Clorox                      17                   2.36       3.3        21.10             4.50         6.90              693

Nike                       100                   1.08       2.8       21.70             1.60          5.80                17

Home Depot        172                   2.03      2.7        23.80            4.00         14.70             331

Marriott                  18                    1.74       2.5       23.60             2.80       18.10               n/a

Starbucks               83                   1.41       2.5         21.10             1.3            10.80             48

Sherwin-Will       27                   1.15        2.3          20.20           7.9          14.80              191

VISA                        187                 0.72      2.2         19.30             1.70         13.40              54

Southwest Air        27                0.71        2           17.90              2.20        8.90                31

JB Hunt Trans        9                   1.06        2         19.4                  2.2           5.10               75

Linking to dividend paying stocks, all the above stocks pay dividends which is a good thing because you never know what will happen, although you can expect things to happen. While you believe companies are doing the right thing, the economy will dictate. By starting with profitable companies, you can make money and focus on what part of their company you like best. Which metric is more important to the street – right down low interest rates companies can carry more debt; do they have enough debt? should the companies be considering something else? who has the highest free cash? There are many reasons for selecting a company however by starting with dividend paying companies there tends to be less risk and more reward for you.

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

 

Escape Plan is a movie staring Sylvester Stallone and Arnold Schwarzenegger in which Sylvester Stallone is hired by governments and private security companies to break out of their unbreakable prisons. If you examine prisons they are designed and built to keep people in and for 99.99% of the people they do their job. If the movie, Stallone plays a person who figures how to get out. The first step of his job is to watch the routines of the people or the guards. Then he can began to look for opportunities to escape. To escape means to have both knowledge and the ability to improvise with what is there. In one example he peels off the wax on the milk carton to be able to see what the numbers used on the alarm systems are – then by trying various combinations the numbers will be in the correct order. Much of the job is silent observing, seeing without saying anything.

Linking to dividend paying stocks, if you watch the markets over a period of time there will be patterns to be found. Some of them are reasonably obvious, some of them need a more trained eye to figure out. One of the obvious patterns is profitable companies should be worth more than non profitable companies (with a few exceptions). If a company can become profitable and stay there for a number of business cycles it is worth owning. Dividend companies fit these patterns or this is where the easy money is to be made. Investing in companies that will move to higher multiples and receiving a payment as the market rewards the shareholders is a good thing with limited risk. There are many patterns on the stock exchange take advantage of the easy ones.

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

Every couple weeks stock analysis are published and the great thing for average investors is they give factors which can help lower the risk return level. Ian Tam of Morningside Research examined dividend paying stocks:

Earnings consistency – measured by the standard deviation of reported earnings per share over 5 years – lower the number the better.

Dividend yield – stock price divided by dividend

5 year dividend growth

5 year historical beta ( a measure of the stock’s price to an underlying index)

5 year earnings per share growth rate

Minimum a market cap of more than $ 500 million and a dividend payout ratio or less than 60%

Company                Mkt Cap     Earnings    5 year     5 yr dividend   5 yr EPS          Payout    Yield

$ Mil           consist        Beta         growth rate    growth rate   ratio %     %

GameStop Corp    3.251           3.78              0.96             51                      7.67                37        4.73

Cisco Systems      135.162        2.45              1.31               33                      7.27               40        3.87

Cracker Barrel         3.545        4.34              0.48              49                     16.96             53         2.97

Penske Auto            3.382        2.17               1.56               38                     22.35             26         2.75

J & J                          310.952      2.41              0.59                 6                        4.82            48        2.84

Wyndham                  7.982      2.13              1.3                    27                     20.82          34         2.82

T Rowe Price           18.597       3.17              1.21                   14                    13.45           46         2.88

3M                           101.628        1.98             1.1                     19                      6.97           53         2.64

Hershey                   20.106       2.67             0.19                 13                       9.97           54         2.51

Amgen                   117.589       3.67              0.84                44                      17.81          36         2.56

Linking to dividend paying stocks, the list has a minimum of 20 but by learning what metrics to look at including free cash flow you will can narrow the choices. All companies which sell stocks have great access to information and these tables help you lose less money. Not losing money should be one the first goals of most of your investments and investing in companies which have consistently paid dividends and have an expected future payouts is a good thing. Start with the top ten on the list or make your own top 10 and you will be investing for all the correct reasons.

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

 

 

If you look at the private money one of the more influential elements are hedge funds and the people who run them. Once in a while, using for a charitable cause, they get together and announce some of their best ideas. This year the 12th Annual Sohn Investment Conference (cause is childhood cancer) was held at the some ideas were given.

Mr. Einhorn of Greenlight Capital believes Caterpillar is overvalued and expects the price to fall.

John Khoury of Long Pond Capital likes Hyatt Hotel group despite the success of Airbnb.

Chamath Palihapitiya of Social Capital believes Amazon and what Amazon can become.

Zachary Schrieber of PointState Capital believes Saudi Arabia’s currency will drop in the next couple of years.

Stanley Druckenmiller believes the fed is all over the map and he is a gold bug.

In another article Boston Consulting released their annual top value-creators based on total shareholder return over a 5 year period.  The top companies were:

Regeneron Pharm   75 %

Allergan PLC              43

Gilead Science            41

Naspers                       41

VISA                              35

Biogen                        35

Tencent Holding      35

Netflix                         35

KDDI                            35

MasterCard                35

Linking to dividend paying stocks, there are many opportunities, however in the list you might find something that is in your wallet – credit cards. If you use them regularly, you are not alone and for the past 5 years they have done well and should continue. Sometimes the best solutions are the ones closest you and things you do on a regular basis.

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

 

 

If you think about the National Football League (NFL) you think because of its success both on and off the field, just about every aspect of the game has been analyzed inside and out. The game is worth billions to the economy and recently the first pick in the draft was a quarterback. On the magazine Inc there is an article about a punter who is bringing innovation to punting. The rules of the game are after 3 tries to make 10 yards, if not successful, then the team typically punts (or kicks) the ball down the field. For many years it was either distance (punt as far as possible) or try for the sideline. The receivers are getting better and there are some punt returns who had a career out of returning punts well. The Baltimore Ravens punter Sam Koch is changing the way punters do their job.

The first aspect is practice, practice and even more practice to build confidence in order to execute when called upon.

Part of the practice is doing bad drills – if you watch football on a regular basis over the years you will likely have seen the ball coming from the center to the punter go high or low or sideways or the punter having to adjust the ball before kicking. Mr. Koch practices those situations to be able to adjust in game situation.

The next aspect is ask what result do you want from each punt? Besides to have the ball deep down in the opposition territory so the defense can stop them and then the offense has a better opportunity to score. The reality is punt receiving has improved and so yards kick minus yards return is a better metric. Mr. Koch has been averaging 44 years net, that is very good.

What has he been doing? he has been changing the risk/reward situation by trying to ensure the ball does not do exactly what the punt returner thinks it will. He has put in hooks; miss directions ( setting to kick in one direction and kicking across the body in a different direction); balls design to roll; from the baseball world a knuckleball; or things designed to make the other team think rather than just act. If the other team has to think first, then there is a possibility the coverage if the punter catches the ball will be better.

For each kick, there needs to be the execution of the play called for in the huddle. What should be the result?and where should the ball be going?

Linking to dividend paying stocks, most games are not decided by the punts but well executed special teams do make a considerable difference in the outcome of the game. In all sectors of the economy and in all companies there are aspects which people seem to not pay  as great attention as possible. For organizations that do or try to do, it could be the competitive advantage for consistent long term results. As you evaluate your companies, look for something which others seem to just miss or not realize the importance.

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

 

In recent weeks, you may have heard or read that Apple sales of iPhone were down in the quarter and Carl Icahn sold his stake in the company, do you have reasons to worry? Apple has been a darling of the markets for many years and has changed mobile phones forever. It is still worth owning? Chis Umiastowski’s column  Apple shines as a long-term growth story is worth considering.

If you have an Apple product and many people do whether it is iPhone, Mac, iPad,  you may have Apple Music because it offers 30 million songs. Apple starts the subscription for free for the person to experiment and listen and soon they are paying for it because the access is great and there is always another song to listen to. To put all this into perspective, there are over 1 billion people in the globe with active Apple devices; 13 million are paying subscription fees to Apple Music (do you think it will rise?) Apple has $ 153 billion in net cash and it grows everyday. Apple has added services such as iCloud to back up devices in the cloud. With all these possibilities do you think Apple can add even more potential subscription services?

Mr. Umiastowski writes Apple’s service business adds a new layer of revenue. But it also creates even more sticky customers. It’s becoming harder to leave the Apple ecosystem. This makes it easier for Apple to command higher prices which result in shareholder-pleasing gross margin levels. Apple should be able to leverage in enormous installed base.

Linking to dividend paying stocks, as consumers we want the best deal; as investors you want consumers to see value in paying more to the company for its goods and services. As long as Apple customers believe Apple is worth the extra money, the ability to leverage more services at higher gross margins means that the $153 billion can change to $200 billion and everyone smiles at the bank.

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

Some of the most profitable companies have been banks and it depends if you work for one or not will depend on what do you think. If you work for the one, generally the employment is secure, the profits are great and the outlook to be employed in the long term is good. If you do not work for a bank, you might think the fees they charge me make all those millions in profits. Is there another way? The answer is maybe and financial technology or fintech companies are being established to answer the question of another way. Rob Carrick column in the Globe and Mail was about this subject.

In the column, Mr. Carrick focused on how one Canadian bank understands e-transfers. E-transfers are done through mobile phone and it is easy way to transfer money from one account to another. Rather than write a cheque, it is simpler to do an Interac e-Transfer.

Linking to dividend paying stocks, Mr. Carrick asks you to look at how your bank or banks you have an investment in to see how they are trying to keep the business at the bank and still enjoy the bank fees. If you bank is doing it well, then that is another reason to keep the investment. If you believe they are not doing e-transfers well, then it is time to look for alternatives.

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

 

At this time of the year, many annual meetings are to be found and if you go besides listening to the speakers and depending on the size of the company enjoying their hospitality, there are some strategic thinking you may wish to do. Harvey Schachter recently wrote around business competition and quoted Jeffery Phillips a North Carolina consultant who asks – instead of competing what if you could make your competition irrelevant? Instead of trying to defeat the competition, try to outmanoeuvre them. The example is the hotel industry. You may have thought with the large chains, blocks of brick and motor buildings filled with beds and washrooms there would be a tremendous barrier to entry. Then along comes Airbnb taking advantage of existing homes and facilities.

Mr. Phillips and Alex Verjosky have 3 outmaneuvering strategies to consider:

Pre-emption – moving to a valuable, unoccupied location, channel or market position before your competition exists and seize it limiting the options for others to follow.

Hotels had reservations systems but did not fully utilize it.

Maxwell House never saw Starbucks coming.

ITunes changed the way people listen to music – no more physical just digital.

The change is hard for others to act, because when they do the newcomer is the established brand.

Dislocation – most companies work on a cycle, carefully cultivated over the years and everyone thinks the cycles are the right one.

The fashion industry has 4 seasons, Zara challenged it with more selections during the year.

Disruption – distract competitors from implementation of their plans to force them to spend time and energy on topics that are not strategic.

An example is Southwest Airlines noticed it was first on US Department of Transportation lists- on time performance, best baggage handling and fewest customer complaints gave itself a Triple Crown award and publicized it. Others had to say what they were doing or not doing.

Linking to dividend paying stocks, the outmaneuvering strategies are often aimed at companies which can pay dividends and therefore they need to consider what the competition will be doing or how to handle and react to the them. If your company is not considering, it is time to look for alternatives.

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