Some dividend investors start and end with the yield, the higher the payout the better. This is not always the case and generally there is reason why the yields are high – beware if they are sustainable. Often times it is better to start with those companies that can pay a dividend and then narrow it to those that can grow their dividends. This is where you need to do your research in determining why can the company grow its dividend?  John Heinzl (jheinzl@globeandmail.com) interviewed Dennis Mitchell of the Sprott Dividend funds to see what he looks for.

Besides growing a dividend, Mr. Mitchell likes low debt levels, high returns on invested capital, a differentiated product or service; and pricing power. Some of the companies he likes are:

Nike  over the past  years the stock is up 28% annually and has more growth headed. This is one of the larger, dominant consumer franchises.

McKesson is one of the 3 largest US drug distributors which means oligopolistic industry benefits from high barriers to entry and strong returns. The company tries to negotiate with big pharm to keep drug costs down by having bulk purchases.

Macquarie Infrastructure Corp – operates a portfolio of business including airports services, bulk petroleum and chemical storage, gas processing and wind and solar power generating facilities. The great thing is they produce steady cash flows for a very sustainable dividend.

Brookfield Infrastructure – assets on 5 continents and include ports, toll roads, utilities, railway and communications towers. The vast majority are regulated which means a very consistent and stable cash flow stream.

Visa – has gained over 33% over the past  years. The world’s largest payments processing network and as we all use less cash – we turn to credit. The new Apple and Android Pay require a credit card – VISA, MasterCard or AMEX.

Linking to dividend paying stocks, within the group are companies who stocks will increase over time as the dividends and cash flow remain consistent and growing. Build your portfolio with these types of companies and you will ensure the first rule of investing of not losing your money is maintained. As the dividend grows, the companies grows and it trades at a higher multiple which is good for you.

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

 

 

A couple weeks ago, Andrew Hallam wrote an article about the book Beating the Dow written by Michael O’Higgins. One system is to finding the 10 highest-yielding stocks in the Dow Jones industrial average. Dogs of the Dow 10 – buy the stocks in equal proportion. The second strategy was called Dogs of the Dow 5 – buy the 5 lowest priced stocks among the top 10 yielders. The idea is to invest in blue-chip companies that have fallen on tough times – they have a huge infrastructures, long histories, extensive customer bases and big revenue streams. Generally, something will come along to fix the companies to push them back to past glories ie new management; strategic changes.

At the end of year one investors reassess their portfolio and stocks that no longer meet their original criteria are sold and new ones are bought.

Between 1991 and 2016 the $10,000 would have risen to $201,000. This is a very healthy return the problem would have been between 1995 and 2005 the strategy did not work. This is when many people would have changed strategies. Mr. Hallam believes rather than jump between strategies, you should try to find a successful one and stick to it. Knowing the market sometimes favors growth investors; sometimes it favors value investors. Mr. Hallam says whether you are a growth investor, value investor, index-fund investor or a high dividend investor stick to the method because all of them work over long term and 10 years is not long term.

There is mountain of evidence that buying index funds is a great long term method because the company which manages the indexes drops off losers and adds winner every 6 months or a year. If you only have a fund with winners it will go up over the years.

If you are a dividend fund books to read include: The Future for Investors by Jeremy Siegel and Michael O’Higgins Beating the Dow.

Growth investors should read Philip Fisher’s Common Stocks and Uncommon Profits.

Value Investors should read Benjamin Graham’s The Intelligent Investor

Everyone should read Howard Schilit’s Financial Shenanigans: How to Detect Gimmicks and Fraud in Financial Reports.

Linking to dividend paying stocks, investing in profitable companies that pay dividends from their profits is a good way for your money to grow in the long run. Sometimes the price goes up as the others see how good the companies are (trade at higher multiples) but the reason you buy them in the first place is the dividend payments. Over the years they increase and you are wealthier. As the dividends increase the shares go up, split and soon your net worth has increased because you had the foresight to invest in good companies.

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

 

 

On March 31, Eldon Musk unveiled the new Tesla vehicle which will be sold in 2017. The price drops from over $100,000 to $35,000 for the latest model. The unveiling was on the Tesla’s website and it looks good. There are books about Mr. Musk and his thinking into the car and while the company is not profitable, for auto industry is still a capital intensive business. The materials must be assembled, the dealership to sell the car established, for Tesla the batteries have to be cutting edge, there needs to be an easy way to charge your car and marketing and promotion will eat up dollars. The great advantage Tesla’s have is the car is also highly connected to the internet. If you have a Microsoft computer, occasionally the company sends its updates – Tesla does the same thing for its cars.

Chris Umiastowski wrote a column about his holiday trip to South Carolina called Tesla road trip maps out case for investment,  for he owns one of the sedans. One of the things holding back people purchasing the vehicle is – the charging of the battery – it is good for city driving but has not been great for road trips. Chris reports that is changing fast, there are more charging systems and the Tesla app helped find the charging systems as well as told him when the car was charged to continue the trip. At the moment, many of the charging systems are near restaurants and hotels – you need to eat sometime and people spend money in the restaurants.

Tesla has many challenges in making their brand easy to use as a gasoline vehicle; however every year the number of charging systems is increasing. It was reported on the website, over 200,000 people have made a $1,000 deposit for their new car in 2017, when it goes over a million it may be time to be real excited about how the average person views their vehicle. Perhaps next year when it is time to change the vehicle, it will be worth test driving.

Linking to dividend paying stocks, all the challenges Tesla has to build are the advantages dividend companies have. The companies will have distribution; they will have marketing and promotion departments; they will have access to banking credits; and they will have many satisfied customers who keep buying their products or services. It is great to read about Tesla but it is often easier to own stock in other companies till Tesla makes money.

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

The book Merchant Princes is about the people who ran a Canadian company called Hudson’s Bay Company (HBC) which started from a land grant from the King of England to his cousin Rupert in which he gave all the lands which rivers flow into Hudson Bay. This land grant turned out to be most of northern and western Canada. Shortly after the grant, the fashion of the day was top hats made out of beaver pelts. The HBC was in the fur business and beavers were easily found and their pelts were shipped to England and the company was making money. For over 100 years, the business plan worked until 1867 when the country of Canada was formed and people in the west growing grain and doing what people do – populating the great plains. As time changed one man was in great position to benefit. Donald Smith had worked his way up from a clerk in the eastern territory of Newfoundland to become the President of the company. Along the way because he could rub two nickels together to produce more, he was managing 37 trusts of stocks holdings for the partners of the HBC in Canada. Primarily he was buying company shares as well as bank shares. The bank elevated him to a Director and shortly the President of the company. In the book, Merchant Princes by Peter C Newman, published by Viking Books, Toronto, 1991, Mr. Newman says Mr. Smith deceived his trust holders. Mr. Smith could see the nature of the HBC was changing from fur monopoly to a giant land holder in a new country. By holding on for 10 years, the land would be more valuable, however Mr. Smith would buy the trust holders shares for the equivalent of $9 a share and these shares in Donald’s lifetime went to over $130 each or a 1300 %. In addition due to land sales, the dividend payment was increased each year. As the company was the banker with the one he was President of – a healthy line of credit was extended to Donald. It is noted for much  of his adult life Donald was the HBC largest shareholder.

For a long time, the HBC ran a steam whistle boat from St. Paul to Winnipeg with rates that were expensive. Mr. Smith began to eye the railroads when on a trip he saw how good the land was for growing grains. There was a railroad but it was either before its time or poorly managed called the St. Paul and Pacific. In partnership with James Hill, Mr. Smith bought the railway for $238,000 in cash for the bondholders who had not been paid were eager to sell their securities. The railway was worth easily in the $20 million range and within 10 years was worth over $60 million and paid interest and dividends well into the future. The success of the St. Paul, Minneapolis and Manitoba Railway lead to the CPR.

The CPR was started with $30 million grant and  lands for the railway and Don Smith and Associates submitted the winning bid. During the construction, if it not been for the Louis Riel story, the railway may have gone bankrupt for the construction in the mountains and muskeg was expensive and few people live there. Eventually minerals were found and the CPR grew to be a mutual fund on the Canadian economy. After the Louis Riel story, the Canadian public was delighted to back mortgage bonds on the CPR as they saw the importance of a railway in the new country and the CPR people were happy to indulge.

Linking to dividend paying stocks, when companies have monopolies and their dividends come in like clockwork, there does not have to much vision besides to stay the course. When times change, new visions are needed. The big question with Donald Smith is why did the CPR benefit (his investment) when the HBC (his employer) missed the great opportunities the CPR took advantage of. Mr. Smith might have done good for both companies except one did not. When you look at the Boards and see it is wonderful people have connections, but you have to wonder if are they using them for the shareholders benefit?

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

 

 

 

The railway or ribbons of steel fascinate many people – the engineering to build and maintain the railroads; the trains themselves; the cargos they carry particularly raw resources of grain, iron ore, coal and other stuff; the speed of the trains and the operations of the railway. In terms of financing the railroads, in the 1880 to the 1900s Donald Smith seemed to be everywhere in financing of the railroads. When he died he owned stocks and bonds up to 30% of the largest railroads – to keep track of his portfolio a trust company was founded. If he owned a securities company such as JP Morgan one might understand it, but Mr. Smith worked in the background for although he was President of a Bank, President of Trading Company, and President of the CPR, none of those jobs would have given him millions of dollars in income. Yet he accumulated a fortune. In the notes of the book Lord Stathcona Donald A Smith written by Donna McDonald published by Dundurn Press, Toronto and Oxford,  1996 it was noted many of Donald’s private papers burned in a fire.

Mr.Smith had bought mortgages and started from a clerk’s salary, but clearly he had the ability to rub two nickels together to produce more money for he saved or invested most of his income. In the notes section of the book is his portfolio and clearly many of the investments are in recurring income industries such as railroads, insurance and banks, utilities and hotels – which would have been reinvesting in companies he was knew from his day jobs. In later years, one of the land grants for the railroad was the iron ore near Duluth which Great Northern Railway had, it combined with James Hill’s purchases of land for $ 4 million  which eventually became Northern Securities when sold to US Steel for $400 million was a significant income, but that was in 1906. During the building of the CPR, similar to other trans country railways, the railway almost ran out of cash in 1883 and Mr. Smith was finding millions of dollars to continue to pay the bills. After the railroad operates it becomes profitable, not until. After the railroad is built, then the buying and selling of pieces of railway makes economic sense, but it still needs money to be done. Was it his money or the banks? did he do insider trading (although never charged) but times were different then and Mr. Smith was seen as influential but not a robber baron.

Linking to dividend paying stocks, we look to the past but the rules have changed. In the 1800’s and 1900’s there was no income tax to be paid; however there were fewer government supports or pensions. Now days it seems hard to save, yet when there is no alternative the recurring income and continuous payment theory has not changed. When you invest, time is a great asset; for if you see the world changing you maybe able to take advantage. If not enjoy the dividends along the way and you should have capital gains one way or the other.

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

 

In  1830 the first railroad in the world was built in England to travel from Liverpool to Manchester and the railway was called the Liverpool and Manchester Railway. For investors the railway was a financial success paying an annual dividend of 9.5% for its 15 years of existence and then it was merged into another railway to merge to become the London and Northwest Railway. After the initial outlay of capital, the railway system worked and railways around the world were built and financed. Unless the railway had goods to ship or was less than the competition (in North America faster than ocean going ships) the railway was a large capital business. To overcome the bankers concerns land grants were given by eager governments, although the people and commodities tended to come later for the world was a very different place in the 1800’s. Once the railways came into existence, the movement of commodities – oil, coal, iron, wheat, corn changed forever. In Canada, there are two railways which dominate the landscape the CPR and the CN. The CPR was the first railway to be built what started out as a private enterprise encouraged by the government, needed vast government supports until in started running and then turned pro private again. The CN is a merger of all the other railways that tried to compete against the CPR.

If you think about the era of railway building – hundreds of millions of dollars were raised by characters now termed larger than life. In the case of the CPR or Canadian Pacific Railway – there were 4 men who founded the company – Donald A Smith, George Stephen, James Hill, Richard Angus and Duncan McIntyre. They had been involved with the St. Paul and Manitoba Railway – made money with it and thought why not take the next step?  The lead person was Donald A Smith (the biography is Lord Stathcona – Donald A Smith written by Donna McDonald published by Dundurn Press, Toronto and Oxford,  1996) who at the time had a number of advantages he brought to the organization. For a number of years he was connected with the Hudson Bay Company which the King of England gave to his cousin Rupert all the lands around all the waters that flow into Hudson’s Bay or about half of Canada. Mr. Smith was President of the Bank of Montreal and for a time had a seat in Parliament of Canada. Now days we would think there is little too much conflict of interest, however it was a different time. Mr. Smith was an active trader on the Wall Street and London markets, he was making more money from his holding of bonds that his day job.

Most companies use the assistance of the government, however the government is most willing to help when the companies make profits. When the company needs the money, the government is slow, runs on its own agenda (votes) and more importantly needs other issues to rally around before it helps. The railway was the same, building across the plains from Winnipeg to Calgary or Chicago to Denver is not the expensive aspect, it is in the mountains and in Canada north of the Lake Superior where it is rocky and full of swampy or muskeg conditions. However, as time moved and commodities were discovered in the mountains, the railway became profitable to run for it could set the freight rates, could sell the land or build new enterprises to take advantage of it.

Linking to dividend paying stocks, in much as the technology was changed the world, the iron coach or railways always changed the world. As the technology is introduced besides to wonder is to decide how can earnings be made on a consistent basis. In that sense nothing has changed, but everything changes.

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

An article written by Tom Bradley (tbradley@steadyhand.com) titled Why the undiscussed really matters is both interesting from a philosophical point of view and from the standpoint of an investors. The article referenced a column from Gillian Tett of the Financial Times who quoted Pierre Bourdieu of France who said it’s not what we discuss in public that matters, but what we don’t discuss that’s really important in terms of reinforcing the status quo.

Mr. Stanley believes the following items do not garner enough conversation.

Investing based on short-term strategies and forecasts is futile.  If you are focused on the short term something may work for a while, but the world is complex and invariably you will lose money. In addition, the biggest advantage as an investor is time.

Time and risk are at the core of investing  An investor needs time to unleash the power of compound interest. Time is linked to risk, the risk is not achieving a reasonable long-term return.

Valuation is way more important than central bankers, politics and capital flows. While there are many things to consider for bonds the best predictor of medium-term returns for bonds is the yields, and for stocks it is price to earnings multiples.

The interests of the wealth management industry are the not the same as the clients. Warren Buffett said Wall Street makes its money on activity, you make money on inactivity. If you really look at the compensation of Wall Street, much of it is based on new products, sales strategies, and strategy shifts. For the average investor most of the time the best strategy is not to do anything.

Emotion is the most consistent crippler of portfolio returns. You have heard many times buy low, sell high. When markets move you feel the need to change your plan to suit the market. What if you had a plan which took an appropriate risk in the first place, then you could weather the storms better.

Linking to dividend paying stocks, much of what Mr. Stanley has written can be easily translated into dividend paying stocks. The stocks are profitable and you bought them at a low and decided to hold them for a few years. The price will go up and down, but the dividend and the fact they are profitable allows the price to advance as you hold them. As an investor you want to ensure the companies stay profitable or find better alternatives.

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

 

Visiting the local library a young adult book with an interesting idea was read. The area the book was written about 100 years ago some small gold and silver mines were discovered about hour’s drive of the area. At some point the natives in the area – who had a wide trading range used silver in their trading. At some point a map was made and the suspense begins. The average person would love to win a lottery or have access to a rich mine to be able to afford extras in their lives. The book called Finding Silver written by Wilma E Alexander self published in 2009 is about silver – a young girl named Silver and the possible silver mine the adults would like to have. In the book, the map of the silver mine is sewn onto a family quilt – for those who know how to look, quilts have many messages. The book is about learning to understand what is really important in your life and family.

Linking to dividend paying stocks, many people search for the silver or gold mine for their riches when in reality the biggest investment to be made is the use of compound interest. The only problem is compound interest takes a few years to really make a difference in your financial statements. If you can have compound interest working for you such as investing in companies with growing dividends plus capital gains your portfolio will rise over time with you doing only minor work. The difficulty is the first path – looking for a gold mine and quick riches or a gold mine which gives over the long term.

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

After Columbus discovered the New World in the eyes of the Europeans, other ships would visit and collect information. Anyone who has been on a boat in the Caribbean knows it is large area and travelling into the unknown, meeting natives some friendly, some hostile, battling food and the weather would have been trying times for anyone. Eventually, gold was heard about first from the Mexico and the Aztec Empire, then later from the Andes (Peru) and the Incas. To retrieve the gold, Spain sent battle hardened soldiers. In the book The Conquistadors by Hammond Innes published by Alfred A Knopf, New York, 1969, their stories are written about. The Mexico group was lead by Hernan Cortes and the Andes were lead by Francisco Pizarro. They each had different routes, although both started with the groups who felt mistreated by the existing rulers, and felt the Spanish would be better than what is. In Mexico, the Aztec Empire fought against the Spanish, and it was a hard fight to win the capital. In the Andes it was foretold the Spanish were coming and the transition was less bloody than it might have been.

In the book, when war is fought, the Conquistadors were the correct people to send, however when no one is at war, then the management style needs to change. In both cases, the desire of the people in the Spain were the riches in gold and silver which flooded into the country allowing the country to become the richest in the world. There is always a disconnect between head office and the outlaying reaches. There are different agendas – for example: when the Spanish came, they brought the religion of Christianity and saw anyone who was not practicing it as a heathen or undesirable. If they changed, life could change or in many cases they killed people. It is hard for a 10 generation worship system to change overnight, however Central and South America is dominated by the Catholic religion. Some things are better; some are not so good for the natives.

Linking to dividend paying stocks, often times these companies will get bigger with acquisition of hungrier firms and this is when you see management from the acquired company leaving. The older company will be more beaucratic, there will be more rules to follow, however there will be more resources to do something. Some efforts will succeed, some will not but no actions are betting the future of the company.

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